Proposed Rule2021-21549
Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers
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Published
October 15, 2021
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission (``Commission'') is proposing to amend Form N-PX under the Investment Company Act of 1940 (``Investment Company Act'') to enhance the information mutual funds, exchange-traded funds (``ETFs''), and certain other funds currently report annually about their proxy votes and to make that information easier to analyze. The Commission also is proposing rule and form amendments under the Securities Exchange Act of 1934 (``Exchange Act'') that would require an institutional investment manager subject to the Exchange Act to report annually on Form N-PX how it voted proxies relating to executive compensation matters, as required by the Exchange Act. The proposed reporting requirements for institutional investment managers, if adopted, would complete implementation of those requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').
Full Text
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[Federal Register Volume 86, Number 197 (Friday, October 15, 2021)]
[Proposed Rules]
[Pages 57478-57524]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-21549]
[[Page 57477]]
Vol. 86
Friday,
No. 197
October 15, 2021
Part II
Securities and Exchange Commission
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17 CFR Parts 232, 240, 249, et al.
Enhanced Reporting of Proxy Votes by Registered Management Investment
Companies; Reporting of Executive Compensation Votes by Institutional
Investment Managers; Proposed Rule
Federal Register / Vol. 86 , No. 197 / Friday, October 15, 2021 /
Proposed Rules
[[Page 57478]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 232, 240, 249, 270, and 274
[Release Nos. 34-93169; IC-34389; File No. S7-11-21]
RIN 3235-AK67
Enhanced Reporting of Proxy Votes by Registered Management
Investment Companies; Reporting of Executive Compensation Votes by
Institutional Investment Managers
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to amend Form N-PX under the Investment Company Act of 1940
(``Investment Company Act'') to enhance the information mutual funds,
exchange-traded funds (``ETFs''), and certain other funds currently
report annually about their proxy votes and to make that information
easier to analyze. The Commission also is proposing rule and form
amendments under the Securities Exchange Act of 1934 (``Exchange Act'')
that would require an institutional investment manager subject to the
Exchange Act to report annually on Form N-PX how it voted proxies
relating to executive compensation matters, as required by the Exchange
Act. The proposed reporting requirements for institutional investment
managers, if adopted, would complete implementation of those
requirements under the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'').
DATES: Comments should be received on or before December 14, 2021.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/submitcomments.htm">http://www.sec.gov/rules/submitcomments.htm</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="b8cacdd4dd95dbd7d5d5ddd6cccbf8cbdddb96dfd7ce">[email protected]</span></a>. Please include
File Number S7-11-21 on the subject line; or
Paper Comments
<bullet> Send paper comments to, Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-11-21. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (<a href="http://www.sec.gov/rules/proposed.shtml">http://www.sec.gov/rules/proposed.shtml</a>). Comments are also
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on
official business days between the hours of 10 a.m. and 3 p.m.
Operating conditions may limit access to the Commission's public
reference room. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
FOR FURTHER INFORMATION CONTACT: Nathan R. Schuur, Senior Counsel;
Angela Mokodean, Branch Chief; or Brian M. Johnson, Assistant Director,
at (202) 551-6792, Investment Company Regulation Office; Terri G.
Jordan, Branch Chief, at (202) 551-6825 or <a href="/cdn-cgi/l/email-protection#591014161a1a192a3c3a773e362f"><span class="__cf_email__" data-cfemail="91d8dcded2d2d1e2f4f2bff6fee7">[email protected]</span></a>, Chief
Counsel's Office, Division of Investment Management, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing new 17 CFR
240.14Ad-1 [new rule 14Ad-1] under the Exchange Act.\1\ We are also
proposing amendments to the following rules and forms:
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\1\ 15 U.S.C. 78a et seq.
\2\ Form N-PX was adopted under the Investment Company Act only.
In this release, we are proposing to amend Form N-PX under both the
Exchange Act and the Investment Company Act. 15 U.S.C. 80a-1 et seq.
\3\ 15 U.S.C. 77a et seq.
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Commission reference CFR citation [17 CFR]
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Investment Company Act:
Rule 30b1-4........................................... Sec. 270.30b1-4.
Exchange Act and Investment Company Act:
Form N-PX \2\......................................... Sec. Sec. 274.129 and 249.326.
Securities Act of 1933 (``Securities Act'') \3\ and
Investment Company Act:
Form N-1A............................................. Sec. Sec. 239.15A and 274.11A.
Form N-2.............................................. Sec. Sec. 239.14 and 274.11a-1.
Form N-3.............................................. Sec. Sec. 239.17a and 274.11b.
Securities Act:
Rule 101 of Regulation S-T............................ Sec. 232.101.
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Table of Contents
I. Introduction and Background
II. Discussion
A. Scope of Funds' Form N-PX Reporting Obligations
B. Scope of Managers' Form N-PX Reporting Obligations
1. Managers Subject to Form N-PX and Categories of Votes They
Must Report
2. Managers' Exercise of Voting Power
3. Additional Scoping Matters for Manager Reporting of Say-on-
Pay Votes
C. Proxy Voting Information Reported on Form N-PX
1. Identification of Proxy Voting Matters
2. Identification of Proxy Voting Categories
3. Quantitative Disclosures
4. Additional Proposed Amendments to Form N-PX
D. Joint Reporting and Related Form N-PX Amendments To
Accommodate Manager Reporting
1. Joint Reporting Provisions
2. The Cover Page
3. The Summary Page
4. Other Proposed Amendments to Form N-PX To Accommodate
Manager Reporting
E. Form N-PX Reporting Data Language
F. Time of Reporting
[[Page 57479]]
G. Requests for Confidential Treatment
H. Proposed Website Availability of Fund Proxy Voting Records
I. Compliance Dates
J. Transition Rules for Managers
K. Technical and Conforming Amendments
III. General Request for Comments
IV. Economic Analysis
A. Introduction
B. Economic Baseline and Affected Parties
1. Funds' Reporting of Proxy Voting Records
2. Managers' Reporting of Say-on-Pay Votes
C. Costs and Benefits
1. Amendments to Funds' Reporting of Proxy Votes
2. Amendments To Require Manager Reporting of Say-on-Pay Votes
D. Effects on Efficiency, Competition, and Capital Formation
1. Amendments to Funds' Reporting of Proxy Votes
2. Amendments To Require Manager Reporting of Say-on-Pay Votes
E. Reasonable Alternatives
1. Scope of Managers' Say-on-Pay Reporting Obligations
2. Amendments to Proxy Voting Information Reported on Form N-PX
3. Amendments to the Time of Reporting on Form N-PX or
Placement of Funds' Voting Records
F. Request for Comment
V. Paperwork Reduction Act
VI. Regulatory Flexibility Act Certification for Managers and
Initial Regulatory Flexibility Analysis for Funds
A. Regulatory Flexibility Act Certification for Managers
B. Initial Regulatory Flexibility Act Analysis for Funds
1. Reasons for and Objectives of the Proposed Actions
2. Legal Basis
3. Small Entities Subject to the Rule
4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
5. Duplicative, Overlapping, or Conflicting Federal Rules
6. Significant Alternatives
7. General Request for Comment
VII. Consideration of Impact on the Economy
VIII. Statutory Authority
I. Introduction and Background
Mutual funds, ETFs, and other registered management investment
companies (collectively, ``funds'') hold substantial institutional
voting power that they exercise on behalf of millions of fund
investors.\4\ Funds own around 30 percent of U.S. corporate equities
and in some cases funds hold a larger percent of a single company's
stock.\5\ As a result, funds can influence the outcome of a wide
variety of matters that companies submit to a shareholder vote,
including matters related to governance, corporate actions, and
shareholder proposals. Funds' proxy voting decisions can play an
important role in maximizing the value of their investments, affecting
the more than 45 percent of U.S. households that own funds, as well as
other investors in U.S. equity markets.\6\
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\4\ Mutual funds and most ETFs are open-end management
investment companies registered on Form N-1A. An open-end management
investment company is an investment company, other than a unit
investment trust or face-amount certificate company, that offers for
sale or has outstanding any redeemable security of which it is the
issuer. See sections 4 and 5(a)(1) of the Investment Company Act [15
U.S.C. 80a-4 and 80a-5(a)(1)]. The amendments proposed in this
release would also apply to registered closed-end management
investment companies (which register on Form N-2) and insurance
company separate accounts organized as management investment
companies that offer variable annuity contracts (which register on
Form N-3).
\5\ ICI 2021 Fact Book, available at <a href="https://www.ici.org/system/files/2021-05/2021_factbook.pdf">https://www.ici.org/system/files/2021-05/2021_factbook.pdf</a>, at figure 2.7 (stating that mutual
funds and other registered investment companies held 30 percent of
U.S. corporate equities as of year-end 2020).
\6\ Id., at figure 7.1 (stating that 45.7 percent of U.S.
households owned funds in 2020).
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For certain types of funds and their investors, proxy voting can
have particularly heightened importance. For example, because index
funds' investment policies typically do not permit them to sell
investments in the relevant index, these funds cannot sell a stock if
they are dissatisfied with management. Instead, index funds may use
their voting power to become active in corporate governance in order to
increase the value of their investments.\7\ Index funds have grown
significantly in recent years. Index funds make up nearly half of the
assets in equity funds.\8\ More generally, the net assets of index
funds as a share of mutual funds and ETFs have more than doubled since
2010.\9\
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\7\ See Disclosure of Proxy Voting Policies and Proxy Voting
Records by Registered Management Investment Companies, Investment
Company Act Release No. 25922 (Jan. 31, 2003) [68 FR 6563 (Feb. 7,
2003)] (``Form N-PX Adopting Release'') at nn.17-18 and accompanying
text (noting that, because passive funds have investment policies
that do not permit them to sell their shares, they may become more
active in corporate governance as a way to maximize value for their
shareholders).
\8\ See Kenechukwu Anadu, Mathias Kruttli, Patrick McCabe, and
Emilio Osambela, ``The Shift from Active to Passive Investing:
Potential Risks to Financial Stability?'', Finance and Economics
Discussion Series 2018-060r1, Washington: Board of Governors of the
Federal Reserve System (2020), available at <a href="https://doi.org/10.17016/FEDS.2018.060r1">https://doi.org/10.17016/FEDS.2018.060r1</a> (citing statistics as of March 2020); see
also ICI 2021 Fact Book, supra footnote 6, at figure 2.8 (stating
that index funds represented 40% of the mutual fund and ETF market,
excluding money market funds, in 2020).
\9\ See ICI 2021 Fact Book, supra footnote 5, at figure 2.8
(noting index fund growth as a share of the mutual fund and ETF
market between 2010 and 2020, excluding money market funds).
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Due to funds' significant voting power and the effects of funds'
proxy voting practices on the actions of corporate issuers and the
value of these issuers' securities, investors have an interest in how
funds vote.\10\ In addition, in recent years, investors have increased
their focus on how funds vote on environmental, social, and governance-
oriented matters (i.e., ESG matters). Many funds now incorporate
sustainability or other ESG factors or put these factors at the center
of their investment approach.
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\10\ Some investors review funds' voting practices by accessing
Form N-PX reports directly on EDGAR, while others may obtain
information about funds' voting practices through analysis or
synthesis of Form N-PX reports by data aggregators or others. A
variety of market participants and other stakeholders also use data
reported on Form N-PX. See infra Section IV.C.1.a.
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In most cases, a fund's adviser votes proxies relating to the
fund's portfolio securities on the fund's behalf.\11\ Investment
advisers are fiduciaries that owe duties of care and loyalty to each
client.\12\ To satisfy its fiduciary duty in making any voting
determination on behalf of a fund, an investment adviser must make
determinations in the best interest of its client. Further, an
investment adviser cannot place its own interests ahead of the
interests of its client.\13\ An investment adviser that assumes proxy
voting authority must adopt and implement policies and procedures
reasonably designed to ensure it votes client securities in the best
interest of clients.\14\
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\11\ See Form N-PX Adopting Release, supra footnote 7, at nn.11-
13 and accompanying text (recognizing that while the fund's board of
directors, acting on the fund's behalf, has the right and the
obligation to vote proxies relating to the fund's portfolio
securities, this function is typically delegated to the fund's
investment adviser).
\12\ Commission Interpretation Regarding Standard of Conduct for
Investment Advisers, Investment Advisers Act Release No. 5248 (June
5, 2019) [84 FR 33669 (July 12, 2019)] (``2019 Fiduciary
Interpretation'').
\13\ Commission Guidance Regarding Proxy Voting Responsibilities
of Investment Advisers, Investment Advisers Act Release No. 5325
(Aug. 21, 2019) [85 FR 55155 (Sept. 3, 2019)] (``Proxy Voting
Interpretation'').
\14\ See 17 CFR 275.206(4)-6.
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In 2003, the Commission adopted Form N-PX, which requires funds to
report publicly their proxy voting records annually. Form N-PX is
designed to improve transparency and enable fund shareholders to
monitor their funds' involvement in the governance activities of
portfolio companies.\15\ Since its adoption, Form
[[Page 57480]]
N-PX has advanced transparency into fund voting. However, these reports
can be difficult for investors to use and can provide an incomplete
picture of a fund's voting practices.
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\15\ See Form N-PX Adopting Release, supra footnote 7, at
paragraph accompanying n.34. Although the Commission proposed to
require funds to disclose their proxy voting records in their annual
and semiannual shareholders reports, after considering comments, the
Commission adopted a separate form--Form N-PX--for funds to use in
filing this information with the Commission. See id. at Section
II.B. In the same release, the Commission also adopted amendments to
require funds to disclose the policies and procedures they use to
determine how to vote proxies. In that release, the Commission
discussed several benefits of providing transparency on how funds
vote, including illuminating potential conflicts of interest,
discouraging voting that is inconsistent with fund shareholders'
best interests, and encouraging funds to become more engaged in
corporate governance of issuers held in their portfolios. Id. at
Section I.
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Investors may face difficulties using Form N-PX reports to find a
particular fund's voting record, find a specific vote or type of vote
that is of interest, or compare funds' voting records for several
reasons. First, the organization and presentation of funds' proxy
voting records in Form N-PX reports can vary significantly. For
example, funds may provide unclear and inconsistent descriptions of
voting matters (e.g., by using abbreviations or other shorthand). As
another example, although the instructions to the form require separate
presentations for each fund, some funds interpret this requirement as
providing flexibility to organize voting information first by security,
with each fund holding that security listed separately.\16\ As a
result, a given fund's voting record can be spread throughout the
report instead of presented together in one place. Second, Form N-PX
reports can be overwhelmingly long due to the number of voting matters
and funds the reports often cover.\17\ A single fund may own hundreds
of securities, each of which may have ten or more proposals each year,
and a single Form N-PX report often includes information about several
different funds' voting records.\18\ Third, reports on Form N-PX are
not currently filed in a machine readable, or ``structured,'' data
language. This can make it more difficult for investors to analyze
efficiently the reported data, particularly in light of the
inconsistencies and length of Form N-PX reports.\19\
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\16\ Many fund complexes include information about several
different funds in a single Form N-PX report, given the structure of
many funds as series of a trust. See Instruction 1 to current Form
N-PX (``In the case of a registrant that offers multiple series of
shares, provide the information required by this Item separately for
each series. The term `series' means shares offered by a registrant
that represent undivided interests in a portfolio of investments and
that are preferred over all other series of shares for assets
specifically allocated to that series in accordance with Rule 18f-
2(a) under the Act (17 CFR 270.18f-2(a)).'').
\17\ Based on staff analysis of reports on Form N-PX, larger
funds can have filings in excess of 1,000 pages.
\18\ For example, during the 2017 proxy season, funds cast more
than 7.6 million votes for proxy proposals, and the average fund
voted on 1,504 separate proxy proposals for U.S. listed portfolio
companies. Letter dated Mar. 15, 2019, from Paul Schott Stevens,
President and CEO, Investment Company Institute, submitted in
response to the Statement Announcing SEC Staff Roundtable on the
Proxy Process, available at <a href="https://www.sec.gov/comments/4-725/4-725.htm">https://www.sec.gov/comments/4-725/4-725.htm</a>.
\19\ While some structured data is available commercially,
investors seeking to use this information may incur costs, as well
as potential limits on the comprehensiveness and timeliness of
available information.
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In addition to difficulties in accessing and analyzing the data
provided on Form N-PX, certain gaps in the required disclosure may
result in an incomplete picture of a fund's proxy voting practices.
Funds commonly engage in securities lending activities to generate
additional revenue for the fund.\20\ When a fund lends its portfolio
securities, it transfers incidents of ownership relating to the loaned
securities, including proxy voting rights, for the duration of the
loan. As a result, while the securities are on loan, the fund is not
able to vote the proxies of such securities. If a fund determines that
it wants to vote loaned securities, it must recall the securities and
receive them prior to the record date for the vote. Recalling loaned
securities may decrease the revenue a fund generates from securities
lending activity. The decision of whether to recall a security on loan
to vote it is not currently disclosed on Form N-PX, although some
investors have expressed interest in information about the relationship
between a fund's securities lending and proxy voting.\21\
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\20\ According to Form N-CEN filings, 67.2% of funds were
authorized to engage in securities lending in their most recent
fiscal year, and 40.2% of funds reported lending securities over
that same period. These funds reported, in the aggregate, net income
from securities lending of $2.663 billion. See also Reena Aggarwal
et al., The Role of Institutional Investors in Voting, J. of
Finance, at 2310 (2015) (noting that ``[m]ost large pension funds,
mutual funds, and other institutional investors have a lending
program and consider it an important source of revenue, with
estimates of $800 million in annual revenue for pension funds.'').
\21\ See, e.g., Letter of the Shareowner Education Network (Oct.
20, 2010) (File No. S7-14-10) (``Shareowner Education Letter on
Concept Release'') (``Funds should disclose all aspects of
securities lending that affect their investors, such as the number
of shares on loan over the record date and lending fees, as well as
the number of shares from any other missed voting opportunities and
the actual number of shares that were voted for each meeting. This
information is important to investors who are monitoring the
stewardship responsibilities of funds.''). See also infra footnote
99.
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To improve the utility of Form N-PX information for investors, we
are proposing amendments to enhance the information funds currently
report about their proxy votes on Form N-PX and to make that
information easier to analyze. For example, we are proposing to require
funds to tie the description of the voting matter to the issuer's form
of proxy and to categorize voting matters by type. We are also
proposing to require reporting of information on Form N-PX in a
structured data language either via a Commission-supplied web-based
form or as an Extensible Markup Language (``XML'') file.\22\ In
addition, we are proposing to require disclosure of the number of
shares that were voted (or, if not known, the number of shares that
were instructed to be cast) and the number of shares that were loaned
and not recalled. To enhance investors' access to funds' proxy voting
records, we also are proposing to require a fund to provide its voting
record on (or through) its website.
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\22\ Cf. Recommendations of the Investor Advisory Committee
Regarding the SEC and the Need for the Cost Effective Retrieval of
Information by Investors (adopted July 25, 2013), available at
<a href="https://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf">https://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf</a>, at 5 (recommending amendments to Form
N-PX to provide for the tagging of data).
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In addition to proposing to amend Form N-PX to enhance disclosure
of funds' proxy voting records, we are proposing rule and form changes
to require an institutional investment manager subject to section 13(f)
reporting requirements (``manager'') to report annually on Form N-PX
how it voted proxies relating to shareholder advisory votes on
executive compensation (or ``say-on-pay'') matters.\23\ Similar to
funds, managers have substantial voting power. As of March 31, 2021,
managers exercised investment discretion over approximately $39.79
trillion in section 13(f) securities.\24\ This aspect of the
[[Page 57481]]
proposal is aimed at completing implementation of section 951 of the
Dodd-Frank Act. The Commission first proposed rule and form changes in
October 2010 to implement the Dodd-Frank Act's manager reporting
requirements.\25\ This proposal takes into account the comments we
received in response to that proposal.
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\23\ The term ``institutional investment manager'' includes any
person, other than a natural person, investing in or buying and
selling securities for its own account, and any person exercising
investment discretion with respect to the account of any other
person. See section 13(f)(6)(A) of the Exchange Act [15 U.S.C.
78m(f)(6)]. The term ``person'' includes any natural person,
company, government, or political subdivision, agency, or
instrumentality of a government. See section 3(a)(9) of the Exchange
Act [15 U.S.C. 78c(a)(9)]. Entities serving as managers could
include, for example: Banks, insurance companies, and broker-dealers
that invest in, or buy and sell, securities for their own accounts;
corporations and pension funds that manage their own investment
portfolios; or investment advisers that manage private accounts,
mutual fund assets, or pension plan assets. In addition to
amendments to Form N-PX, we are proposing new rule 14Ad-1 under the
Exchange Act to require managers to annually report their say-on-pay
votes on Form N-PX.
\24\ This number does not include put or call options and is
based on staff review of managers' reports on Form 13F covering the
first quarter of 2021. Section 13(f) of the Exchange Act requires a
manager to file a report with the Commission if it exercises
investment discretion with respect to accounts holding certain
equity securities (``section 13(f) securities'') having an aggregate
fair market value on the last trading day of any month of any
calendar year of at least $100 million. Rule 13f-1 requires that
managers file quarterly reports on Form 13F if the accounts over
which they exercise investment discretion hold an aggregate of more
than $100 million in section 13(f) securities. See 17 CFR 240.13f-1.
Section 14A(d) of the Exchange Act requires that ``every
institutional investment manager subject to section 13(f)'' of the
Exchange Act report its say-on-pay votes.
\25\ See Exchange Act Release No. 63123 (Oct. 18, 2010) [75 FR
66622 (Oct. 28, 2010)] (``2010 Proposing Release'').
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Section 951 of the Dodd-Frank Act added new section 14A to the
Exchange Act. This section generally requires public companies to hold
non-binding shareholder advisory votes to: (1) Approve the compensation
of its named executive officers; (2) determine the frequency of such
votes, with the option of every 1, 2, or 3 years; and (3) approve
``golden parachute'' compensation in connection with a merger or
acquisition (collectively, ``say-on-pay votes'').\26\ Section 14A(d) of
the Exchange Act requires that every manager report at least annually
how it voted on say-on-pay votes, unless such vote is otherwise
required to be reported publicly. The Commission's 2010 proposal to
implement this provision would have required managers to file their
record of say-on-pay votes with the Commission annually on Form N-PX,
and would have amended Form N-PX to accommodate the new manager
filings.\27\
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\26\ See section 14A(a) and (b) of the Exchange Act; 17 CFR
240.14a-21; see also Item 402(a)(3) of Regulation S-K (defining the
term ``named executive officers'').
\27\ See 2010 Proposing Release, supra footnote 25. Unless
otherwise indicated, comments cited in this release are the public
comments the Commission received in response to the 2010 Proposing
Release, which are available at <a href="http://www.sec.gov/comments/s7-30-10/s73010.shtml">http://www.sec.gov/comments/s7-30-10/s73010.shtml</a>. In addition, to facilitate public input on the
Dodd-Frank Act, the Commission provided a series of email links,
organized by topic, on its website. The public comments received on
section 951 of the Dodd-Frank Act are available at <a href="http://www.sec.gov/comments/df-title-ix/executive-compensation/executive-compensation.shtml">http://www.sec.gov/comments/df-title-ix/executive-compensation/executive-compensation.shtml</a>.
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Most commenters on the 2010 proposal expressed overall support for
the Commission's proposal to implement this requirement through
reporting on modified Form N-PX.\28\ As discussed further below, some
commenters expressed concerns with particular aspects of the proposal.
The rule and form amendments we are proposing include certain
modifications from the 2010 proposal, including modifications that take
into consideration commenters' suggestions. In response to comments, we
propose to require managers to report say-on-pay votes for securities
over which the manager exercised voting power. The proposed definition
of exercise of voting power focuses on instances when the manager uses
voting power to influence a voting decision. To reduce the potential
for duplicative reporting when more than one manager exercises voting
power or when a manager exercises voting power on behalf of a fund, we
propose to allow managers to rely on joint reporting provisions under
these circumstances. We also propose that the amendments to Form N-PX
for funds would apply to managers reporting say-on-pay votes on Form N-
PX.
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\28\ See, e.g., Letter of California Public Employees'
Retirement System (Nov. 18, 2010) (``CalPERS Letter''); Letter of
Council of Institutional Investors (Nov. 12, 2010) (``CII Letter'');
Letter of Glass Lewis & Co. (Nov. 18, 2010) (``Glass Lewis Letter
I''); Letter of Investment Company Institute (Nov. 18, 2010) (``ICI
Letter''); Letter of Senator Carl Levin (Nov. 18, 2010) (``Levin
Letter''); Letter of Heidi Preston (Oct. 26, 2010). Two commenters
acknowledged that the Commission's proposal was required under the
Dodd-Frank Act. Letter of Investment Adviser Association (Nov. 16,
2010) (``IAA Letter''); Letter of Oli Stone (Nov. 17, 2010) (``Stone
Letter''). One commenter generally opposed the proposal. Letter of
Dennis Reiland (Nov. 8, 2010) (``Reiland Letter'').
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II. Discussion
A. Scope of Funds' Form N-PX Reporting Obligations
Currently, every registered management investment company, other
than a small business investment company registered on Form N-5, must
file its proxy voting record annually on Form N-PX.\29\ We are not
proposing to modify the scope of registered investment companies
subject to Form N-PX reporting requirements.
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\29\ See rule 30b1-4 under the Investment Company Act [17 CFR
270.30b1-4].
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We are, however, proposing to amend the scope of voting decisions
these funds must report. Currently, funds are required to report
information for each matter relating to a portfolio security considered
at any shareholder meeting held during the reporting period and with
respect to which the fund was entitled to vote.\30\ We are proposing to
amend this standard to provide that, for purposes of Form N-PX, a fund
would be entitled to vote on a matter if its portfolio securities are
on loan as of the record date for the meeting because the fund could
recall them and vote them.\31\ This proposed amendment is designed to
ensure that a fund's filings on Form N-PX reflect the effect of its
securities lending activities on its proxy voting, providing context to
the information funds already provide about revenue from securities
lending.
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\30\ See Item 1 of current Form N-PX.
\31\ See Item 1 of proposed Form N-PX.
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We request comment on the proposed amendments to the scope of
funds' reporting obligations on Form N-PX, including the following:
1. Should we continue to require all registered management
investment companies, other than small business investment companies
registered on Form N-5, to report on Form N-PX? Are there other types
of registered investment companies, such as unit investment trusts,
that we should require to report their proxy votes on Form N-PX? If we
do so, would these other types of investment companies face unique
challenges in reporting their proxy votes? If we extended Form N-PX
reporting requirements to unit investment trusts, should we exclude
unit investment trusts that invest exclusively in mutual funds, such as
those that offer variable annuities and variable life insurance, since
the underlying mutual funds would be covered?
2. As proposed, should we amend Form N-PX to provide that a fund
will be entitled to vote on a matter if its portfolio securities are on
loan as of the record date? If not, why should the form not consider a
fund to be entitled to vote loaned securities where the fund could
recall the securities in order to vote them?
B. Scope of Managers' Form N-PX Reporting Obligations
1. Managers Subject to Form N-PX and Categories of Votes They Must
Report
We are proposing that Form N-PX reporting obligations for say-on-
pay votes would extend to each person that (i) is an ``institutional
investment manager'' as defined in the Exchange Act; and (ii) is
required to file reports under section 13(f) of the Exchange Act.\32\
This is consistent with the scope of the reporting obligation in
section 14A(d) of the Exchange Act. Thus, a manager that is otherwise
required to report on Form 13F would be required to disclose its say-
on-pay votes on Form N-PX.\33\
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\32\ See proposed rule 14Ad-1(a); 15 U.S.C. 78m(f).
\33\ Proposed rule 14Ad-1(a).
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We are proposing, consistent with the 2010 proposal, to require a
manager's report on Form N-PX to include the manager's voting record
for say-on-pay votes.\34\ The types of votes that the
[[Page 57482]]
proposal would require managers to report are the same as the types
provided by section 14A(d) of the Exchange Act. The manager, therefore,
would be required to report votes required by section 14A(a) on the
approval of executive compensation and on the frequency of such
executive compensation approval votes, as well as votes required by
section 14A(b) on the approval of executive compensation that relates
to an acquisition, merger, consolidation, or proposed sale or other
disposition of all or substantially all the issuer's assets.
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\34\ Proposed rule 14Ad-1(a); Item 1 of proposed Form N-PX.
Shareholder votes on executive compensation that are not required by
sections 14A(a) and (b), such as in the case of foreign private
issuers (as defined in rule 3b-4(c) under the Exchange Act [17 CFR
240.3b-4(c)]) that are exempt from the proxy solicitation rules,
would not be required to be reported on proposed Form N-PX.
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A few commenters expressed support for broader disclosure of
managers' proxy votes, beyond say-on-pay votes.\35\ In the 2010
proposal, the Commission did not propose to require reporting of votes
other than say-on-pay votes by managers because the purpose of that
rulemaking was primarily to implement a statutory mandate.\36\ We
continue to believe that it is appropriate to focus on managers' say-
on-pay votes, consistent with the statutory mandate.
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\35\ See ICI Letter (expressing the belief that all
institutional investors should be required to disclose every proxy
vote they cast, as funds currently do); Stone Letter (suggesting
that manager reporting requirements should cover all proxy items
over which the manager has voting authority, rather than just say-
on-pay votes).
\36\ See, e.g., 2010 Proposing Release, supra footnote 25, at
Section II.B.1 (``The scope of votes that would be required to be
reported under the proposal is the same as the scope provided by new
Section 14A(d) of the Exchange Act.'').
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We request comment on the class of managers who would be required
to file reports on Form N-PX and the types of votes they would be
required to report under the proposal:
3. Is the proposed scope of managers that would be required to
report say-on-pay votes on Form N-PX appropriate? Does it sufficiently
capture all managers? Does it capture managers that should not be
covered? Why or why not?
4. Is there a more appropriate standard for proposed rule 14Ad-1's
manager reporting requirements? If so, please explain.
5. Should we, as we are proposing, require managers to report all
of their say-on-pay votes? Are any exclusions warranted? If so, please
explain.
6. Should we require managers to report say-on-pay votes on Form N-
PX, as proposed? Should managers use a different form for reporting
these votes? For example, would there be advantages to requiring
managers to report say-on-pay votes on Form 13F instead?
7. In addition to requiring managers to report their say-on-pay
votes, should we require managers to report any votes other than say-
on-pay votes? If so, please identify any other votes that managers
should be required to report and the basis for the Commission to
introduce such a reporting requirement.
8. Are there circumstances in which managers may want to
voluntarily disclose other types of votes, beyond say-on-pay votes, on
Form N-PX? If so, are there any impediments in the proposal that would
prevent or discourage managers from voluntarily disclosing information
about other types of votes?
2. Managers' Exercise of Voting Power
We are proposing to require that a manager report a say-on-pay vote
for a security only if the manager ``exercised voting power'' over the
security--that is, if the manager both has voting power and exercises
that power.\37\ Under the proposal, voting power would exist when a
manager has the ability to vote the security or direct the voting of
the security, including the ability to determine whether to vote the
security at all, or to recall a loaned security before a vote.\38\ The
proposal would define exercise of voting power to mean the actual use
of voting power to influence a voting decision.\39\ Voting power could
exist or be exercised directly or through a contract, arrangement,
understanding, or relationship, and multiple parties could have voting
power over the same securities. For example, a party could exercise
voting power if it influences the way a third party votes the security,
even where the manager is not the sole decision-maker.\40\ The proposed
rule thus adopts a two-part test for determining whether a vote must be
reported, requiring both power to vote a security (or to cause another
party to vote such security) and the actual use of such power to
influence the voting decision in the case of the specific vote.\41\
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\37\ See proposed rule 14Ad-1(a).
\38\ See proposed rule 14Ad-1(d)(1) (defining voting power).
\39\ See proposed rule 14Ad-1(d)(2) (defining exercise of voting
power).
\40\ If two managers exercise voting power over the same
security, they could rely on the joint reporting provisions in the
proposal to reduce reporting burdens and address duplicative
reporting. See infra Section II.D.1.
\41\ Proposed rule 14Ad-1(a); Item 1 of proposed Form N-PX.
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The proposed voting power standard differs from the approach the
Commission proposed in 2010 and from how the Commission has identified
voting power in certain other contexts. In 2010, the Commission
proposed to require that a manager report a say-on-pay vote for a
security only if the manager ``had or shared the power to vote, or to
direct the voting of'' the security, using language similar to 17 CFR
240.13d-3(a) (rule 13d-3(a)) under the Exchange Act.\42\ Some
commenters on the 2010 Proposing Release supported the proposed focus
on voting power as the standard for determining whether a manager must
report say-on-pay votes, with one noting that in practice, shared
voting arrangements are rare.\43\ Other commenters suggested that it
would be more appropriate to focus on who actually voted the security,
rather than who had the power to vote the security.\44\ Another
commenter noted that in certain cases, managers cast votes based on
client instructions, and that in such cases the manager's voting power
is ministerial in nature.\45\
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\42\ See 2010 Proposing Release, supra footnote 25, at n.18 and
accompanying text.
\43\ See, e.g., Letter of Chris Barnard (Nov. 13, 2010)
(``Barnard Letter''); CalPERS Letter; CII Letter.
\44\ See, e.g., Stone Letter; Letter of Managed Funds
Association (Dec. 22, 2010) (``MFA Letter''); ABA Letter; Glass
Lewis Letter I.
\45\ See, e.g., Mayer Brown Letter.
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The revised standard we are proposing is intended to clarify the
scope of the say-on-pay vote reporting obligation by focusing more
specifically on the exercise, rather than mere possession, of voting
power. Our proposed standard is intended to align responsibility for
deciding how to vote securities with responsibility for reporting such
votes.\46\ The proposed approach is tailored to considerations
associated with section 14A(d) of the Exchange Act and the scope of
say-on-pay vote reporting obligations. As a result, our proposed
definition of ``voting power'' and the ``exercise'' of voting power do
not affect the meaning of these or similar terms used in other
Commission rules.
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\46\ Glass Lewis Letter I (supporting this approach).
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The proposed test focuses on exercise, rather than mere possession,
of voting power to address shared voting power situations and to make
managers' reports of say-on-pay votes more useful for clients and other
investors. As an example of the proposed approach, if a manager votes a
client's separate account's shares based on its own judgment or in
accordance with its own guidelines, the manager exercised voting power
over the security and would be required to report those votes.
Conversely, if the manager's voting decision on a say-on-pay vote is
entirely determined by its client, either because the client
communicates its wishes directly to the manager or because the client
has a written policy regarding the voting decision that does not call
for
[[Page 57483]]
any independent judgment by the manager, the manager is not exercising
voting power over the security because the manager is not influencing
the voting decision. The proposal would not require a manager to report
these votes. This is the case even if the manager is the party that
carries out the actual vote in accordance with its client's wishes.
However, if the manager influences the voting decision in this context
by, for example, exercising its own judgment in determining how the
client's policies should apply to the say-on-pay vote, then the manager
would exercise voting power when it carries out the policy and report
the vote accordingly. This may be the case, for instance, if a client
has a policy of opposing pay packages that are unreasonable but
determining if a package is ``unreasonable'' involves exercise of the
manager's judgment. When determining whether the manager exercised
voting power, the manager should assess whether it was using its voting
power to influence the voting decision--such as by exercising
independent judgment or expertise in a way that affects how the
security was voted--or whether it was instead simply applying a policy
on a formulaic or mechanical basis. As another example, a manager would
exercise voting power where the manager casts a vote in accordance with
voting policies developed by the manager and adopted by the client. A
manager with voting power may also exercise that voting power through
other influence over the voting decision, separate from any discretion
the manager may have in determining or applying a client's voting
policies. The fact patterns in this discussion are meant to be
illustrative examples and are not meant to cover all scenarios in which
a manager would be required to report say-on-pay votes because it has
voting power and uses that power to influence a voting decision.
The proposed test also provides that a manager exercises voting
power when it influences the decision of whether to vote a security.
For example, a manager that determines not to vote on a say-on-pay
matter would exercise voting power under the proposal. A manager also
would exercise voting power when it decides whether to recall loaned
securities in advance of a vote in order to vote the shares.\47\
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\47\ See also infra Section C.3.b (discussing proposed
disclosure about the number of shares a reporting person has loaned
and not recalled, and the benefits of that disclosure).
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A manager would not exercise voting power if a third party makes
all decisions of whether to vote the security. For example, certain
clients may have relationships with securities lending agents, and the
client or the securities lending agent would determine whether to
recall loaned securities, without any involvement by the manager.\48\
In this case, the manager would not exercise voting power with respect
to the loaned securities because it would not influence the decision of
whether to recall the loaned shares.
---------------------------------------------------------------------------
\48\ See ABA Letter.
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The framework we are proposing is intended to provide additional
insight into how managers are exercising the voting discretion they
have been granted by their clients without attributing to managers
votes that are dictated fully by their clients or by other managers.
The framework is intended to avoid potential confusion that could
result from a manager reporting votes where the manager did not
influence the voting decision. We believe requiring a manager who does
not exercise voting power, for instance because its votes are entirely
dictated by a client's policy, to report those votes on Form N-PX would
be of limited benefit to the manager's clients and potential clients,
as well as other investors. It would not provide insight into--and in
fact may obscure--how a manager exercises its discretion.\49\
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\49\ See, e.g., ISS Letter; Mayer Brown Letter (commenting that
managers sometimes effectuate client voting decisions by completing
the proxy card, but do not have control over or decide how shares
will be voted).
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In certain cases, we expect our proposed framework will result in
multiple parties determining they exercise voting power (e.g., because
more than one manager provides input on applying a client's voting
policies). In these circumstances, all such managers would come within
the scope of the reporting requirements under the proposal, although
they could rely on the joint reporting provisions discussed below to
reduce reporting burdens.
The focus on a manager's exercise of voting power could result in
the manager's reports on Form N-PX differing from its reports on Form
13F. For example, if a manager exercises investment discretion over a
particular section 13(f) security held in a client's account, but the
client retains all rights to vote proxies for that security, the
manager generally would report that security on its holdings report on
Form 13F. However, it would not be required to report any say-on-pay
votes with respect to that security. Conversely, a manager that
exercises voting power over a security, but is not required to report
the security on Form 13F because it does not have investment discretion
over the security or because it did not hold the security at the end of
a calendar quarter, would nonetheless be required to report say-on-pay
votes on Form N-PX for that security.\50\
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\50\ See also discussion infra Section II.B.3 (discussing
differences in reporting between Form 13F and Form N-PX).
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The 2010 proposal asked whether it would be appropriate to use a
different standard, such as investment discretion, as the test for
reporting say-on-pay votes.\51\ We believe that using investment
discretion as the test would result in managers having to report votes
cast by clients in cases where the manager retains investment
discretion but not voting power. We believe this would be confusing to
investors and could inaccurately imply that the manager filing the
report actually made or influenced the decision it was reporting.\52\
We also are not proposing to base the reporting requirement upon
whether a manager, in fact, votes rather than on whether the manager
exercises voting power.\53\ A test based on who physically marks the
proxy card (or its electronic equivalent) would omit from its scope
managers that participated in determining how to cast the vote, but
would simplify the reporting obligation.\54\
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\51\ See 2010 Proposing Release, supra footnote 25, at Section
II.B.2.
\52\ CII Letter.
\53\ Glass Lewis Letter I (only the ``voting entity'' should
report); MFA Letter (require reporting only when the manager has
instructed an intermediary to vote its shares); Letter of Seward &
Kissel LLP (Nov. 18, 2010) (``Seward Letter'') (require reporting by
manager that ``actually voted'' the proxy); Stone Letter (party who
votes should bear the burden of disclosure and the Commission should
not require reporting on the basis of shared voting authority).
\54\ ISS Letter (suggesting that the manager who receives the
ballot should be the primary filer with respect to the votes covered
by that ballot).
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We request comment on the proposed approach of requiring managers
to report say-on-pay votes when they exercise voting power over the
security, and in particular, on the following issues:
9. Should the reporting requirement be based on exercising the
power to vote with respect to say-on-pay votes as proposed, or should
we use some other basis? For example, should we base the reporting
requirement on the possession of investment discretion, the identity of
who in fact votes, or the identity of who receives the ballot? As
another example, should a vote that was dictated entirely by a client's
mandate be treated as an exercise of voting power by the manager, even
if the manager did not influence the vote? What are the advantages and
disadvantages of the different potential approaches?
[[Page 57484]]
10. Should we modify the proposed definitions of voting power or
exercise of voting power? For example, instead of considering a manager
to exercise voting power when it uses voting power to influence a
voting decision, should we use a different standard, such as using
voting power to ``significantly'' influence a voting decision or to
``primarily'' make a voting decision? If so, what factors would be
relevant for determining if a manager's role in a voting decision meets
the revised standard?
11. Should we, as proposed, consider a manager to exercise voting
power when it has the ability to determine not to vote or to recall
loaned securities? Would this provision present challenges to managers?
If so, what are those challenges, and are there changes to the
reporting requirement that would address such challenges?
12. Should we provide additional guidance concerning the
circumstances under which a manager exercises voting power? If so,
please specify the type of guidance that managers would find helpful.
13. Does our proposed exercise of voting power standard cover
circumstances that should be covered or should not be covered? If so,
what are the circumstances that should or should not be covered?
3. Additional Scoping Matters for Manager Reporting of Say-on-Pay Votes
We are proposing to require that a manager report say-on-pay votes
with respect to any security over which it meets the voting power test
described above.\55\ As was the case in the 2010 Proposing Release, we
are not proposing to modify the scope of securities to align with those
reported on Form 13F or to provide exceptions where the manager does
not vote.
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\55\ Proposed rule 14Ad-1(a).
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Some commenters supported the requirement that managers report any
security.\56\ Other commenters requested that the Commission limit the
reporting obligation to securities that had previously been reported
publicly on Form 13F or adopt a de minimis threshold below which
reporting of say-on-pay votes would not be required.\57\ A commenter
requesting a de minimis threshold argued that not providing an
equivalent exemption from Form N-PX reporting as is available from Form
13F reporting would reduce the value of the 13F exemption and raise
costs for managers.\58\
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\56\ CII Letter; Levin Letter.
\57\ See, e.g., ABA Letter (recommending non-disclosure of say-
on-pay votes for securities not previously reported because they
were below the de minimis threshold for Form 13F); Seward Letter
(suggesting limiting the securities to which the reporting
requirements apply to those securities previously reported publicly,
or, in the alternative, adopting a threshold position size below
which a reporting person need not report proxy votes); Barnard
Letter (excluding securities where the manager holds less than
10,000 shares); Reiland Letter (suggesting to limit to holdings on
which persons are required to file statements on Schedule 13D or
Schedule 13G under the Exchange Act).
\58\ See Letter of Intel Corporation (Nov. 19, 2010) (``Intel
Letter''). On Form 13F, a manager is permitted to omit holdings of
fewer than 10,000 shares (or less than $200,000 principal amount in
case of convertible debt securities) and less than $200,000
aggregate fair market value. See Special Instruction 10 to Form 13F.
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While we acknowledge commenters' suggestion that a de minimis
threshold could reduce record keeping and reporting burdens on managers
for smaller position sizes that currently do not require reporting on
Form 13F, a de minimis threshold could reduce the value of the say-on-
pay disclosure because a fund or manager's full voting record would not
be available when the threshold applied. We therefore are not proposing
to provide a de minimis threshold for institutional managers reporting
their say-on-pay votes on Form N-PX.
Because Form 13F reports only disclose holdings as of the close of
a calendar quarter, these reports are not required to include
securities held during the quarter but subsequently disposed of prior
to the end of the quarter. Form 13F reports also do not reflect when a
manager increased or decreased its position during a quarter but
returned to the ``baseline'' level reported on its previous Form 13F
report by the end of the quarter. As a result, although some commenters
requested that the Commission limit say-on-pay reporting to securities
that had previously been reported publicly on Form 13F, this approach
could exclude a significant number of say-on-pay votes, which we
believe would be inconsistent with the purpose of section 14A. The
proposed rule therefore would require a manager to report say-on-pay
votes without regard to whether the manager had previously reported or
been required to report the security as a holding on Form 13F.
In addition to comments suggesting that Form N-PX reporting
obligations should more closely align with Form 13F, some commenters
suggested other exceptions from Form N-PX reporting for managers who do
not vote. For example, two commenters recommended that we not require a
manager to report on Form N-PX if, under certain or all circumstances,
the manager does not vote.\59\ These commenters stated that some
investment strategies (such as algorithmic strategies with short
holding periods) are unrelated to the economic interests served by
voting proxies. One of these commenters stated that, with respect to
certain strategies, voting proxies could be characterized as ``empty
voting.'' \60\ One of these commenters suggested that, in some cases,
securities are held for insufficient periods (such as less than one
day) to perform the requisite analysis for proxy voting, and where the
manager disclosed a policy not to vote proxies to its clients, the
manager's Form N-PX report would contain little information and would
not further the policy objectives of the proposed rule.\61\ The other
commenter expressed concern about the burdens of developing and
implementing technology to track record date holdings in cases where
the manager does not vote.\62\
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\59\ See Seward Letter (requesting an exception from the
reporting requirement where the manager maintains a policy not to
vote proxies and discloses that policy to clients); ABA Letter
(requesting a blanket exception for holdings that were not voted).
\60\ See ABA Letter; see also Exchange Act Release No. 62495
(July 14, 2010) [75 FR 42982, 43017-20 (July 22, 2010)] (``Proxy
Mechanics Concept Release'') (discussing the concept of ``empty
voting''). This release cites some comment letters on the Proxy
Mechanics Concept Release. These comment letters are available at
<a href="https://www.sec.gov/comments/s7-14-10/s71410.shtml">https://www.sec.gov/comments/s7-14-10/s71410.shtml</a>.
\61\ Seward Letter.
\62\ ABA Letter.
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We believe that an exception from Form N-PX reporting requirements
when a manager does not cast a vote on say-on-pay matters may limit the
ability of investors to understand fully how a manager votes its
shares. In addition, we believe the burden of reporting when the
manager does not vote its shares would be lower under our current
proposal, as compared to the burden of the equivalent aspect in the
2010 proposal, because the current proposal would not require the
manager to track record date holdings to disclose the number of shares
the manager was authorized to vote.\63\
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\63\ See supra Section II.C.3 (discussing how the quantitative
information contained in this proposal differs from the 2010
proposal, including no longer proposing to require the number of
shares the manager was authorized to vote).
---------------------------------------------------------------------------
A few commenters requested exceptions from Form N-PX reporting
requirements in situations where a manager discloses certain
information about how it votes to its clients, such as formulaic voting
criteria developed by the manager which have been disclosed to clients
or where the manager distributes its voting record to a client who had
provided the manager its own
[[Page 57485]]
proxy policies or guidelines to follow.\64\ We do not believe that an
exception would be warranted in these circumstances because, in
addition to benefiting the direct clients of managers, public
disclosure of say-on-pay votes could benefit other investors, such as
plan participants of employee benefit plans that hire managers.
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\64\ ABA Letter (formulaic voting criteria); Mayer Brown Letter
(distribution to clients).
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Finally, to the extent a manager did not exercise voting power over
any securities that held say-on-pay votes during a given reporting
period, we are proposing to require the manager to file a Form N-PX
report affirmatively stating this fact. The Commission also proposed
this requirement in 2010.\65\ One commenter opposed this requirement,
stating that it would not contribute to the objective of increased
transparency regarding any possible influence over shareholder votes
and corporate governance.\66\ However, we believe this disclosure would
help investors and the Commission differentiate managers with no
reportable say-on-pay votes from those that failed to file a Form N-PX
report to disclose say-on-pay votes.
---------------------------------------------------------------------------
\65\ Item 1 of proposed Form N-PX.
\66\ Seward Letter.
---------------------------------------------------------------------------
We request comment on the circumstances in which the proposal would
require a manager to file a Form N-PX report, and, in particular, on
the following issues:
14. Should we permit managers to omit votes otherwise reportable
where the manager's ownership is below a specific threshold? What are
the potential advantages or disadvantages if we permit a manager that
holds, on the record date, fewer than 10,000 shares and less than
$200,000 aggregate fair market value to omit say-on-pay votes on such
securities? Would such an exception impede investors from understanding
how shares were voted? Why or why not?
15. Should we permit managers to omit votes on a particular type of
security? Do managers have substantial holdings of securities that are
not ``section 13(f) securities'' as defined by 17 CFR 240.13f-1(c), but
are registered pursuant to section 12 of the Exchange Act and thus
would have say-on-pay votes? Would there be potential advantages or
disadvantages if we required managers to report only their say-on-pay
votes on section 13(f) securities? Would such an approach be consistent
with the public interest, and how would it impact investor protection?
16. Should we permit managers to omit votes on securities that were
not held as of the end of a calendar quarter (and thus would not be
reported on Form 13F)? Should we permit or require any disclosure on
Form N-PX or elsewhere to explain differences between information
reported on Form N-PX and information reported on Form 13F or related
circumstances (e.g., where a manager has significantly more or less
voting power on the record date of a say-on-pay vote than its Form 13F
report would otherwise suggest)? If so, under what circumstances would
this disclosure be helpful? What would the disclosure entail, and
should it be permissive or required? \67\
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\67\ Under the proposal, a manager would be permitted to
disclose additional information on the cover page of its Form N-PX
report, so long as it does not, either by its nature, quantity, or
manner of presentation, impede the understanding or presentation of
the required information. See General Instruction C.3 of proposed
Form N-PX.
---------------------------------------------------------------------------
17. Should we expand or limit in any other way the securities with
respect to which managers would be required to report say-on-pay votes?
18. Should we modify the proposed approach for managers that do not
vote their shares? For example, should we permit these managers to not
file Form N-PX reports? Should we exempt non-voting managers from
certain disclosure requirements on Form N-PX concerning the various
securities they did not vote on say-on-pay matters during the reporting
period? What conditions or limitations, if any, should apply? For
instance, to rely on a modified approach, should a manager be required
to disclose to its clients that it does not vote? Would a modified
approach be particularly applicable to certain categories of managers,
such as those whose trading strategies involve relatively short-term
ownership?
19. As proposed, should we require a manager without any say-on-pay
votes to disclose to file a report on Form N-PX stating that fact?
Would such filings effectively distinguish managers that missed a
required filing from managers without say-on-pay votes to report?
C. Proxy Voting Information Reported on Form N-PX
We are proposing to enhance funds' current Form N-PX disclosures so
investors can more easily understand and analyze proxy voting
information. These proposed changes include, for example, more clearly
tying the description of the voting matter to the issuer's form of
proxy and categorizing voting matters by type. In addition, we are
proposing to extend many of these proposed enhancements to the Form N-
PX reports that managers would file under this proposal.
1. Identification of Proxy Voting Matters
We are proposing to require reports on Form N-PX to identify proxy
voting matters using the same language as disclosed in the issuer's
form of proxy. In 2010, the Commission proposed to require standardized
descriptions for say-on-pay votes and brief identifications of other
votes.\68\ At that time, the Commission requested comment on
alternative methods of standardizing descriptions of these voting
matters. As part of the Proxy Mechanics Concept Release, the Commission
also solicited comment regarding methods for uniform identification of
proxy voting matters in Form N-PX reports.\69\ In particular, the
Commission asked about ways to standardize identifications if issuers
do not themselves create and assign unique interactive data ``tags''
for each matter on their proxy statements.\70\ Several commenters on
the Commission's 2010 proposal supported requiring standardized
descriptions for say-on-pay votes, and one commenter on the Proxy
Mechanics Concept Release expressed support for standardizing
descriptions more broadly.\71\ Two commenters expressed concern with
standardized descriptions for matters other than say-on-pay votes.
These commenters cited the practical challenges posed in uniformly
identifying different matters, given both the variety of voting matters
before shareholders and the absence of standardized data tags in issuer
proxy materials.\72\
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\68\ See 2010 Proposing Release, supra footnote 25, at paragraph
accompanying n.89.
\69\ Proxy Mechanics Concept Release, supra footnote 60, at
Section III.C.3.
\70\ Id., at requests for comment subsequent to n.237 (``Whether
or not we permit or require interactive data tagging, should Form N-
PX require standardized reporting formats so that comparisons
between funds are easier?'').
\71\ See CalPERS Letter; Fidelity Letter; Letter of Michael
Ostrovsky (Sept. 5, 2013) (File No. S7-14-10) (``Ostrovsky Letter on
Concept Release'') (supporting a standardized classification system
for voting matters).
\72\ See Fidelity Letter (citing difficulty ``given the wide
variety of votes placed before shareholders'' and stating that ``as
a general matter, the variable nature of proxy-related disclosures
do not lend themselves to uniform standardization''); Letter of
Fidelity Investments (Oct. 20, 2010) (File No. S7-14-10) (``Fidelity
Letter on Concept Release'') (questioning feasibility of providing
for a uniform identification of each matter voted in reports on Form
N-PX); Letter of Investment Company Institute (Oct. 20, 2010) (File
No. S7-14-10) (``ICI Letter on Concept Release'') (citing a
``significant practical issue'' of ``how to provide for uniform
identification of each matter voted across different funds'').
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[[Page 57486]]
We are proposing to require reporting persons to use the same
language from the issuer's form of proxy to identify proxy voting
matters on Form N-PX.\73\ In addition, each voting matter (including
say-on-pay votes and other voting matters) would be required to be
reported in the same order as presented on the issuer's form of
proxy.\74\ We believe these proposed requirements would facilitate
identification of identical matters included on different Form N-PX
filings by different reporting persons even though there is no
interactive data tagging in issuer proxy materials.\75\ We are
proposing to apply the identification requirement to all voting matters
in order to facilitate the ability of investors to better understand
fund and manager proxy disclosure and compare voting records. We
believe that reflecting the descriptions and ordering used on an
issuer's form of proxy, which is publicly available and must identify
clearly and impartially each separate matter intended to be acted upon,
would address the previously identified practical issues associated
with standardized descriptions.\76\
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\73\ Special Instruction D.3 to proposed Form N-PX.
\74\ Id. For matters involving the election of more than one
director, reporting persons would be required to identify each
director separately in the same order as on the form of proxy, even
if the election of directors is presented as a single matter on the
form of proxy. Id.
\75\ See 2010 Proposing Release, supra footnote 25, at requests
for comment subsequent to n.90 (requesting comment on alternatives
that could result in uniform tags being assigned by all reporting
persons).
\76\ See Securities Exchange Act rule 14a-4(a)(3) (requiring
that the form of proxy identify clearly and impartially each
separate matter intended to be acted upon). See also Division of
Corporation Finance, Compliance and Disclosure Interpretations,
Section 301 (Mar. 22, 2016), available at <a href="https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3-301.htm">https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3-301.htm</a>.
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We request comment on the proposed requirement to identify proxy
voting matters, including the following:
20. Should we require, as we are proposing, that Form N-PX use the
descriptions and ordering used on an issuer's form of proxy? Are there
practical considerations we should consider with respect to tying Form
N-PX disclosure to forms of proxies?
21. Does using the descriptions and ordering used on an issuer's
form of proxy, which is publicly available, overcome the previously
identified practical issues associated with standardized descriptions?
Why or why not? Should we revert to the standardized language approach
for say-on-pay votes, as was proposed in the 2010 proposal? If so, why?
22. Would the proposed requirement to use the description and
ordering from an issuer's form of proxy facilitate the comparison of
Form N-PX data, or otherwise enhance the usefulness of information
reported on Form N-PX for users? What obstacles, if any, might prevent
reporting persons from being able to comply with the proposed
requirement?
2. Identification of Proxy Voting Categories
We are proposing that Form N-PX reporting persons select from
standardized categories to identify the subject matter of each of the
reported proxy voting items. This requirement would apply to managers
and funds. The proposal would require a reporting person to categorize
each proxy voting matter from a specified list of categories and
subcategories. The proposed categories and subcategories are designed
to cover matters on which funds frequently vote, based on our staff's
experience and review of the matters on which funds voted in 2020,
including say-on-pay votes:
<bullet> Board of directors (subcategories: Director election, term
limits, committees, size of board, or other board of directors matters
(along with a brief description));
<bullet> Section 14A say-on-pay votes (subcategories: 14A executive
compensation, 14A executive compensation vote frequency, or 14A
extraordinary transaction executive compensation); \77\
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\77\ The proposed Form N-PX categorizations include a separate
category for say-on-pay votes to make it easier for investors to
identify these votes, which require special disclosure under the
Dodd-Frank Act. The Commission similarly proposed to require
managers to use standardized descriptions to identify these votes in
the 2010 proposal.
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<bullet> Audit-related (subcategories: Auditor ratification,
auditor rotation, or other audit-related matters (along with a brief
description));
<bullet> Investment company matters (subcategories: Change to
investment management agreement, new investment management agreement,
assignment of investment management agreement, business development
company approval of restricted securities, closed-end investment
company issuance of shares below net asset value, business development
company asset coverage ratio change, or other investment company
matters (along with a brief description));
<bullet> Shareholder rights and defenses (subcategories: Adoption
or modification of a shareholder rights plan, control share acquisition
provisions, fair price provisions, board classification, cumulative
voting, or other shareholder rights and defenses matters (along with a
brief description));
<bullet> Extraordinary transactions (subcategories: Merger, asset
sale, liquidation, buyout, joint venture, going private, spinoff,
delisting, or other extraordinary transaction matters (along with a
brief description));
<bullet> Security issuance (subcategories: Equity, debt,
convertible, warrants, units, rights, or other security issuance
matters (along with a brief description));
<bullet> Capital structure (subcategories: Stock split, reverse
stock split, dividend, buyback, tracking stock, adjustment to par
value, authorization of additional stock, or other capital structure
matters (along with a brief description));
<bullet> Compensation (subcategories: Board compensation, executive
compensation (other than Section 14A say-on-pay), board or executive
anti-hedging, board or executive anti-pledging, compensation clawback,
10b5-1 plans, or other compensation matters (along with a brief
description));
<bullet> Corporate governance (subcategories: Articles of
incorporation or bylaws, board committees, codes of ethics, or other
corporate governance matters (along with a brief description));
<bullet> Meeting governance (subcategories: Approval to adjourn,
acceptance of minutes, or other meeting governance matters (along with
a brief description));
<bullet> Environment or climate (subcategories: Greenhouse gas
(GHG) emissions, transition planning or reporting, biodiversity or
ecosystem risk, chemical footprint, renewable energy or energy
efficiency, water issues, waste or pollution, deforestation or land
use, say-on-climate, environmental justice, or other environment or
climate matters (along with a brief description));
<bullet> Human rights or human capital/workforce (subcategories:
Workforce-related mandatory arbitration, supply chain exposure to human
rights risks, outsourcing or offshoring, workplace sexual harassment,
or other human rights or human capital/workforce matters (along with a
brief description));
<bullet> Diversity, equity, and inclusion (subcategories: Board
diversity, pay gap, or other diversity, equity, and inclusion matters
(along with a brief description));
<bullet> Political activities (subcategories: Lobbying, political
contributions, or other political activity matters (along with a brief
description));
<bullet> Other social (subcategories: Data privacy, responsible tax
policies, charitable contributions, consumer protection, or other
social matters (along with a brief description)); or
[[Page 57487]]
<bullet> Other (along with a brief description).
Some categories would contain specific subcategories which a
reporting person must select when filing a report on Form N-PX. For
example, a reporting person would need to distinguish section 14A
executive compensation votes from section 14A executive compensation
frequency votes. When categorizing a particular voting matter, a
reporting person would be required to select multiple categories or
subcategories for the matter if applicable. If a vote did not fall
within a specified subcategory, the reporting person would select the
``other'' subcategory and provide a brief description. The brief
description need only identify the subject matter of the vote,
consistent with the level of detail in the specified subcategories.
We believe that requiring reporting persons to categorize their
proxy votes would help investors understand how funds and managers are
voting by helping them readily identify votes on matters that are
important to them. It also would allow investors to compare how
different managers or funds voted on specific types of matters.
We request comment on the proposed requirement to categorize proxy
votes reported on Form N-PX, and, in particular, on the following
issues:
23. Should we require reporting persons to categorize their votes,
as proposed? What are the advantages and disadvantages of this
approach?
24. Do the proposed categories or subcategories adequately capture
the range of proxy voting matters? Are there other categories or
subcategories of votes that we should require reporting persons to
identify? Will these categorizations enhance the usefulness of the
information reported on Form N-PX for investors and facilitate the
comparison of reporting persons' proxy voting records? Are there
categories or subcategories we should eliminate?
25. Should we require reporting persons to use high-level
categories to identify different types of votes, or should we require
reporting persons to use subcategories, as proposed? Are there
particular areas where subcategories are more or less difficult for
reporting persons to use for purposes of identifying different types of
votes? Are there particular areas where subcategories are more or less
useful for investors?
26. Are there particular types of votes where the categorization
would be unclear or where reporting persons may reasonably categorize
the same vote differently? To what extent would the ability to select
more than one category for a given vote address these types of issues?
Would the use of subcategories help address or contribute to
potentially differing approaches to categorizing a particular vote
among reporting persons?
27. Are the proposed categories and subcategories sufficiently
clear? Are there any categories or subcategories where additional
guidance or definition would be helpful for understanding the
parameters of a category or subcategory?
3. Quantitative Disclosures
We are proposing changes to Form N-PX that would require disclosure
of information about the number of shares that were voted (or, if not
known, the number of shares that were instructed to be cast). We are
also proposing a requirement to disclose the number of shares the
reporting person loaned and did not recall. These quantitative
disclosure requirements would apply to a manager's say-on-pay votes and
to all of a fund's votes.
In 2010, the Commission proposed to require that both funds and
managers report: (1) The number of shares that the reporting person was
entitled to vote (for funds) or had or shared voting power over (for
managers); (2) the number of shares voted; and (3) how the reporting
person voted the shares and, if the votes were cast in multiple manners
(e.g., for and against), the number of shares voted in each manner.\78\
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\78\ See 2010 Proposing Release, supra footnote 25, at Section
II.E.3.
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Comments regarding these quantitative disclosure requirements were
mixed. Some commenters supported the proposed quantitative disclosures
or stated that they were acceptable.\79\ Some commenters stated that
providing quantitative disclosures would be burdensome.\80\ One
commenter opposed requiring funds to quantify votes in particular and
stated that quantitative disclosures might cause confusion for
investors or result in competitors gaining insight into fund
strategies.\81\
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\79\ See Levin Letter (stating that quantitative disclosure will
allow investors to monitor, understand, and hold their proxies
accountable for their votes); CalPERS Letter (finding disclosure of
the number of shares voted acceptable).
\80\ See ICI Letter; Fidelity Letter; Mayer Brown Letter. One
commenter, however, while opposing quantitative disclosures for
other reasons, noted that from a purely technological perspective,
disclosing share positions voted would be straightforward. See ISS
Letter.
\81\ See ICI Letter (noting that complying with the quantitative
disclosure requirements as proposed would be burdensome and
difficult, and questioning the value to shareholders).
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Some commenters, while opposing any requirement that reporting
persons report quantitative information, agreed that the use of the
existing Form N-PX disclosure (e.g., for, against, or abstain) without
quantification is not meaningful for ``split votes,'' i.e., if
different votes are cast on the same matter by a reporting person.\82\
These commenters suggested, should the Commission determine to adopt
quantitative reporting requirements, that it limit such reporting to
instances of actual split votes, and allow reporting persons to report
the number of shares instructed to be cast.\83\ Another commenter
suggested that the Commission consider alternative indications of
``magnitude'' in lieu of requiring disclosure of the number of votes
cast.\84\
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\82\ See Fidelity Letter (stating that ``a mere notation of
`split' may not be rich disclosure''); ICI Letter (stating that
``simply reporting `split' does not provide much meaningful
information about the way the reporting entity voted, and additional
information may be useful to put the split vote in context'').
\83\ See ICI Letter; Fidelity Letter; MFA Letter.
\84\ See Mayer Brown Letter.
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As discussed in greater detail below, as compared to the 2010
proposal, there are three primary differences in the proposed
quantitative disclosures requirements: (1) Clarifying that the
reporting person's records could be used to determine the number of
shares voted, even where those records do not reflect a confirmed
number of actual votes cast and received by the issuer; (2) requiring
disclosure of the number of shares the reporting person has loaned and
not recalled; and (3) not proposing the previously proposed provisions
requiring disclosure of the number of shares the reporting person was
entitled to vote (for funds) or had or shared voting power over (for
managers).
a. Disclosure of Number of Shares Voted
We are proposing, substantially as proposed in the 2010 proposal, a
requirement that both funds and managers disclose: (1) The number of
shares voted (or instructed to be voted); and (2) how those shares were
voted (e.g., for or against proposal, or abstain).\85\ If the votes
were cast in multiple manners (e.g., both for and against), we propose
requiring disclosure of the number of shares voted (or instructed to be
voted) in each manner.\86\ We are proposing to require
[[Page 57488]]
disclosure of the number of shares voted or instructed to be voted
because, where a manager votes in multiple ways on the same matter,
disclosure of that fact alone is largely meaningless without providing
a measure of the magnitude of the different votes.\87\ In addition, and
in contrast to the 2010 proposal, we are also proposing to require
disclosure of the number of shares the reporting person loaned and did
not recall.\88\ We believe that the context given by disclosing the
number of shares voted would allow investors to better understand how
securities lending activities affect the voting practices of the
reporting person. Without disclosing the amount voted, the amount of
shares on loan for a given vote would not provide meaningful insight
into how a fund or manager voted.
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\85\ Items 1(h) and 1(j) of proposed Form N-PX.
\86\ Item 1(j) of proposed Form N-PX. As proposed in the 2010
release, in the case of a shareholder vote on the frequency of
executive compensation votes, a reporting person would be required
to disclose the number of shares, if any, voted in favor of each of
1-year frequency, 2-year frequency, or 3-year frequency, and the
number of shares, if any, that abstained. We are clarifying that the
number zero (``0'') would be entered if no shares were voted, so
that responses to this item would be uniformly numeric in nature.
Item 1(h) of proposed Form N-PX.
\87\ While we understand that funds do not split votes
regularly, we believe investors would benefit from parity in
disclosure between funds and managers in cases where funds do split
votes.
\88\ Item 1(i) of proposed Form N-PX. See also infra Section
II.C.3.b for more information with respect to this proposed
requirement.
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As suggested by some commenters, we are proposing to modify the
2010 proposal with respect to the disclosure of the number of shares
voted because reporting persons may not be able to determine with
certainty how many of the votes they instructed to be cast were
actually voted in a particular matter.\89\ This change would permit a
reporting person to use the number of shares voted as reflected in its
records at the time of filing a report on Form N-PX. If a reporting
person has not received confirmation of the actual number of votes
cast, we are proposing that Form N-PX instead may reflect the number of
shares instructed to be cast on the date of the vote.\90\ The proposal
would not require a reporting person to seek confirmation of the actual
number of votes cast if this information is not otherwise readily
available.\91\ However, should the reporting person learn prior to
filing its Form N-PX that a different number of shares were voted, the
reporting person would be required to report the actual number of votes
cast.\92\ If confirmation of the actual number of votes cast occurs
after the reporting person files the Form N-PX report, we are not
proposing to require an amendment to the filing. We believe that this
approach would reduce the compliance burden of providing information
regarding the number of shares voted. At the same time, this disclosure
would still achieve the goal of providing meaningful information to
investors about how a reporting person voted its shares.
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\89\ See ICI Letter; Fidelity Letter; MFA Letter. See also
Memorandum from the Division of Investment Management regarding
November 29, 2010 telephone call with BlackRock, Inc.,
representatives (November 30, 2010), available at <a href="http://www.sec.gov/comments/s7-30-10/s73010-33.pdf">http://www.sec.gov/comments/s7-30-10/s73010-33.pdf</a> (in which BlackRock
representatives indicated that the burden associated with providing
quantitative disclosures may be significantly reduced to the extent
that the proposed quantitative disclosure requirement was modified
to only require disclosure of the number of votes instructed to be
cast). In addition, we recognize that this may be an issue when a
manager's client enters an arrangement with a securities lending
agent to loan the client's securities without any involvement by the
manager.
\90\ Special Instruction D.5 to proposed Form N-PX. See Fidelity
Letter (suggesting quantitative disclosure be limited to votes
instructed to be cast); ICI Letter (same); MFA Letter (same); Stone
Letter (same). See also Proxy Mechanics Concept Release, supra
footnote 60, at Section II.B.1 (discussion of issues surrounding
confirmation of proxy votes).
\91\ Special Instruction D.5 to proposed Form N-PX.
\92\ Id.
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Although suggested by a commenter, we are not proposing disclosure
of the number of shares voted only in split voting situations.\93\ We
believe that requiring different disclosures for votes, depending on
whether a reporting person split its vote on a particular matter, could
result in potentially confusing inconsistencies within each report on
Form N-PX. Providing information about the number of shares voted, in
addition to shares on loan and not recalled, also would present a more
complete picture of a reporting person's voting, including by allowing
an investor to understand the extent to which a reporting person
determines not to vote.
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\93\ See ICI Letter.
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We also disagree with commenters that disclosure of the number of
votes cast could result in competitors gaining insight into reporting
persons' holdings.\94\ Given the alignment of filing deadlines among
forms, this disclosure likely will be publicly available via Form 13F
(for managers) and Form N-PORT (for funds) before the reporting person
is required to file on Form N-PX.\95\ Even for securities reported on
Form N-PX that are not reported on Form 13F or Form N-PORT, proxy votes
reported on Form N-PX generally occur up to several months (including
as many as 14 months) before the August 31 Form N-PX reporting date. As
a result, we do not believe the disclosure would materially affect
competition.\96\ Reporting persons would also be permitted to request
confidential treatment of filed information, as discussed further
below.
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\94\ See ISS Letter; ICI Letter (noting that quantitative
disclosure information might be useful to competitors looking for
information about fund holdings).
\95\ To the extent securities reported on Form N-PX are included
on Form 13F, reports from managers on Form 13F for the quarter
ending June 30 would be required to be filed no later than August
14. This means that public disclosure of such holdings on Form 13F
generally would pre-date the August 31 deadline for filing Form N-
PX. Similarly, funds must publicly disclose their holdings on a
quarterly basis on Form N-PORT. See 17 CFR 270.30b1-9 (requiring
filing no later than 60 days after the end of the relevant fiscal
quarter).
\96\ See also infra Section IV.
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We are also not proposing the approach advocated by one commenter
who suggested that the Commission consider alternative indications of
``magnitude'' in lieu of requiring disclosure of the number of votes
cast. This commenter suggested, for example, that a manager could
report how a majority (or plurality) of the shares the manager was
entitled to vote was actually voted or managers could report the
percentage of total votes cast for each position.\97\ We are not
proposing these approaches because we believe they do not sufficiently
demonstrate how a manager exercised its voting power (including any
shares on loan and not recalled). We believe this context is important
to present a more complete picture of how the manager votes, and these
alternatives do not provide additional information relative to our
proposal. Further, these methods would not alleviate any burden in
retaining and reporting quantitative data regarding the number of votes
cast.
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\97\ Mayer Brown Letter.
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We request comment on the proposed disclosure of the number of
shares voted, and, in particular, on the following issues:
28. Should we, as proposed, require funds and managers to report
the number of shares voted (or instructed to be cast)? Does disclosing
the number of shares voted allow investors to understand better how
securities lending activities impact the voting practices of the
reporting person? Why or why not?
29. As proposed, should we require a reporting person to report the
actual number of votes cast if it learns prior to filing its Form N-PX
that a different number of shares were voted than the reporting person
instructed to be cast? Should we require this reporting only if the
reporting person receives information about the actual number of shares
voted within a specified period before its Form N-PX filing is due? If
so, what should the specified period be (e.g., at least 5, 10, or 30
days before the Form N-PX filing is due)?
30. Are there other ways to promote investor understanding of
reporting
[[Page 57489]]
persons' voting practices (e.g., the occurrence of split voting) that
we should require instead of, or in addition to, disclosure of the
number of shares voted (or instructed to be cast)? For example, would
investor understanding be promoted if we required reporting of another
metric, such as the percentage of total shares held that were voted (or
instructed to be cast), to be disclosed? Why or why not?
31. We are proposing that, if a reporting person has not received
confirmation of the actual number of votes cast, the reporting person
instead may reflect the number of shares instructed to be cast on the
date of the vote. Does this alleviate concerns about the burden on
reporting persons with respect to quantitative disclosures? Is the
information disclosed still of utility to data users? Why or why not?
32. Should the requirement to disclose the number of shares voted
only apply to certain types of votes or to a subset of reporting
persons? For example, should this disclosure be required only in the
case of say-on-pay votes or split votes?
33. Does the proposed requirement to disclose the number of shares
voted complement the proposed requirement to disclose the number of
shares the reporting person loaned and did not recall? Would investors
need both figures to understand how securities lending activities
affect a reporting person's proxy voting? Are there other figures or
types of information one would need to understand the interaction
between these two activities?
34. Are there additional quantitative disclosures we should
consider that would provide utility to investors?
b. Disclosure of Number of Shares the Reporting Person Loaned and Did
Not Recall
In addition to the number of shares a reporting person voted, we
are proposing to require disclosure of the number of shares the
reporting person loaned and did not recall.\98\ We understand from
commenters that this information about securities lending is important
to understand a reporting person's voting record because the reporting
person cannot affirmatively cast a vote for or against a matter if the
security is on loan over the record date. Several commenters on the
2010 Proposing Release and Proxy Mechanics Concept Release stated that
it was important to know how many shares were not voted because they
were on loan.\99\ The proposed requirement is designed to provide
transparency into how a reporting person's securities lending affects
its proxy voting.
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\98\ Item 1(i) of proposed Form N-PX.
\99\ Levin Letter; Letter of InterOrganization Network (Oct. 13,
2010) (File No. S7-14-10); Shareowner Education Letter on Concept
Release; Letter of Society of Corporate Secretaries & Governance
Professionals (Nov. 22, 2010) (File No. S7-14-10) (``SCSGP Letter on
Concept Release'').
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We also believe the proposed requirement to disclose the number of
shares the reporting person loaned and did not recall would help
address commenters' concerns with a requirement in the 2010 proposal to
disclose the total number of shares a fund was entitled to vote or a
manager had or shared voting power over. Some commenters opposed the
requirement in the 2010 proposal because of the cost and effort that
would be required to aggregate and reconcile the total number of shares
a fund is entitled to vote or a manager has or shared voting power
over.\100\ These commenters noted complexities in the current proxy
system, including the intermediation between issuers and shareholders,
and the multitude of entities involved (such as transfer agents, proxy
vendors, and tabulators).\101\ Some commenters also raised concern that
there could be potentially confusing or misleading discrepancies
between the reported number of shares voted and the reported number of
shares which the reporting person was entitled to vote or over which it
had or shared voting power.\102\ For example, commenters discussed
scenarios in which discrepancies between these figures could arise
despite the reporting person's intent to vote all available shares
(e.g., discrepancies resulting from differing proxy frameworks in
certain jurisdictions or limitations on a manager's ability to vote
shares that its client has loaned as part of an agreement solely
between the client and its custodian).\103\
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\100\ See, e.g., ABA Letter; ICI Letter; Fidelity Letter; Stone
Letter. See also Letter of Institutional Shareholder Services, Inc.
(Oct. 20, 2010) (File No. S7-14-10) (``ISS Letter on Concept
Release''); Letter of Sullivan & Cromwell LLP (Oct. 20, 2010) (File
No. S7-14-10) (``Sullivan & Cromwell Letter on Concept Release'');
Fidelity Letter on Concept Release; Letter of BlackRock (Oct. 29,
2010) (File No. S7-14-10) (``BlackRock Letter on Concept Release'');
Letter of CFA Institute (Nov. 22, 2010) (File No. S7-14-10); ICI
Letter on Concept Release.
\101\ See ICI Letter; Sullivan & Cromwell Letter on Concept
Release.
\102\ See Fidelity Letter; ICI Letter; Mayer Brown Letter.
\103\ See Fidelity Letter; Mayer Brown Letter.
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We are proposing a requirement that focuses solely on shares a
reporting person loaned and did not recall. Under federal law, an
investment adviser is a fiduciary.\104\ With respect to securities
lending, advisers have a fiduciary duty to consider the tradeoffs
between continuing to keep securities on loan, or recalling loaned
securities in order to vote.\105\ The disclosure we are proposing to
add to Form N-PX would provide transparency regarding whether a
reporting person has opted to recall a security and vote the
accompanying proxy or to keep the security out on loan. Absent this
disclosure, investors would not have information about a manager's
decision not to recall a loaned security, which is similar to the
decision not to vote on a matter, which currently is reported on Form
N-PX.\106\ Our proposal also takes into account commenters' concerns on
the prior proposal, and we believe the quantitative information we are
proposing to require is easier for reporting persons to obtain than the
information the 2010 proposal would have required. For instance, the
proposal does not implicate the complexities in the current proxy
system with determining the number of shares the reporting person was
entitled to vote or over which it had or shared voting power that
commenters described.
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\104\ 2019 Fiduciary Interpretation, supra footnote 12, at text
accompanying n.2. See also SEC v. Capital Gains Research Bureau,
Inc., 375 U.S. 180, 194 (1963); Investment Adviser Codes of Ethics,
Investment Advisers Act Release No. 2256 (July 2, 2004); Compliance
Programs of Investment Companies and Investment Advisers, Investment
Advisers Act Release No. 2204 (Dec. 17, 2003); Electronic Filing by
Investment Advisers; Proposed Amendments to Form ADV, Investment
Advisers Act Release No. 1862 (Apr. 5, 2000).
\105\ See Proxy Voting Interpretation, supra footnote 13, at
response to question 1 and at n.34 (indicating that while the
application of the investment adviser's fiduciary duty in the
context of proxy voting will vary with the scope of the voting
authority assumed by the investment adviser, the relationship in all
cases remains that of a fiduciary to the client, and an investment
adviser must make any determination regarding whether to retain a
security and vote the accompanying proxy or lend out the security in
the client's best interest).
\106\ See Item 1(g) of current Form N-PX.
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The disclosure we are proposing would be required only where the
reporting person has loaned the securities. This would include
scenarios where the reporting person loans the securities directly or
indirectly through a lending agent.\107\ However, it would not include
scenarios where the manager is not involved in lending shares in a
client's account because, for
[[Page 57490]]
example, the manager is not a party to the client's securities lending
agreement and has not itself (rather than the client) loaned the
securities. As recognized above, a manager would not exercise voting
power over loaned securities when its client hires a securities lending
agent to loan securities in the client's account and the manager has no
involvement in the securities lending arrangement or in decisions to
recall loaned securities.\108\ Thus, the manager would not have any
say-on-pay reporting obligations with respect to those loaned
securities.
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\107\ See Special Instruction D.7 of proposed Form N-PX. To the
extent a reporting person allocates an amount of securities to the
lending agent for lending purposes and treats that amount of
securities as being on loan when determining how many shares it can
vote in a matter, the reporting person should report all of the
allocated shares as being on loan and not recalled (excluding any
shares the reporting person recalled for the vote).
\108\ See supra paragraph accompanying footnote 48.
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We request comment on the proposed requirement to disclose the
number of shares loaned and not recalled, and, in particular, on the
following issues:
35. Should we require disclosure of the number of shares a
reporting person loaned and did not recall, as proposed? Is this
information valuable to investors? Does the value of the information
differ between institutional and retail investors? Are there any
changes we could make to enhance the utility of the information for
investors?
36. Are there limitations we should be aware of regarding the
ability of reporting persons to disclose the number of shares loaned
and not recalled? If so, are there ways would could address those
limitations?
37. We understand that proxy statements typically are not delivered
until after the record date.\109\ Does this create challenges for
reporting persons to determine whether they want to recall loaned
securities before the record date? \110\ If so, how might these
challenges affect disclosure of the number of shares loaned and not
recalled, or other aspects of this proposal? Are there any changes we
should make to the proposed rule to recognize these challenges?
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\109\ See Proxy Mechanics Concept Release, supra footnote 60, at
Section III.C.2.
\110\ Some commenters on the Proxy Mechanics Concept Release
suggested that the lack of a meeting agenda prior to a record date
generally does not affect their ability to anticipate many kinds of
voting matters and to make arrangements to recall loaned securities
in advance of a record date, if they determine to do so. See, e.g.,
ICI Letter on Concept Release; Letter of American Bar Association
(Dec. 17, 2010) (File No. S7-14-10).
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38. Would the proposed requirement to disclose the number of shares
a reporting person loaned and did not recall affect decisions a fund or
manager currently makes on when to recall a loaned security for
purposes of voting and when to keep a security on loan? If so, how
might the proposal affect the revenues funds or managers (and, by
extension, their investors or clients) receive from securities lending?
Would disclosure of this effect be helpful to a fund's investors or a
manager's clients? If so, what form should this disclosure take?
39. Beyond information about how securities lending activities
affect proxy voting, are there other types of information that would
help investors understand a reporting person's approach to voting? If
so, are there ways we could capture that information in Form N-PX
reports or elsewhere? Similar to the 2010 proposal, should we require
that the reporting person disclose the total number of shares a fund
was entitled to vote or a manager exercised voting power over?
40. Commenters raised concerns that the quantitative disclosure
requirements in the 2010 proposal may lead to investor confusion.\111\
Does our proposed approach limit the potential for confusing
discrepancies by focusing more directly on the number of shares voted
and the number of shares on loan? If not, what areas of potential
confusion remain under our current proposal, and are there changes we
could make to reduce the potential for confusion?
---------------------------------------------------------------------------
\111\ See supra footnote 103 and accompanying text.
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4. Additional Proposed Amendments to Form N-PX
In addition to proposing new categories of disclosure on Form N-PX,
we are proposing certain other amendments to enhance the usability of
Form N-PX reports and to modernize or clarify existing form
requirements. For instance, we are proposing to require a standardized
order to the Form N-PX disclosure requirements.\112\ We are also
proposing an amendment to require a fund that offers multiple series of
shares to provide Form N-PX disclosure separately by series (for
example, provide Series A's full proxy voting record, followed by
Series B's full proxy voting record).\113\ We believe these proposed
changes will make Form N-PX disclosure easier to review and compare
among reporting persons. Several commenters supported standardized
order requirements, stating the importance of displaying data in a
consistent manner to assist in analyzing multiple votes.\114\ One
commenter, in contrast, stated that we should not adopt a standardized
order requirement and that it was not aware of shareholders having any
difficulty in deciphering or locating Form N-PX information.\115\
However, we are re-proposing the requirement because we continue to
believe it would make the disclosure easier to review and compare among
reporting persons, and believe it will aid our overall objective to
increase transparency.
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\112\ See Special Instruction D.1 to proposed Form N-PX.
\113\ See Special Instruction D.9 to proposed Form N-PX.
\114\ See Levin Letter (supporting standardized order and
stating that ``[r]equiring the data to be displayed in a consistent
manner will assist analysis of multiple votes''); CalPERS Letter
(finding standardized order to be acceptable); Letter of the State
Board of Administration of Florida (Oct. 20, 2010) (File No. S7-14-
10) (``Florida Board Letter on Concept Release'') (supporting
standardization of reporting for Form N-PX); Shareowner Education
Letter on Concept Release (same); Letter of the United States Proxy
Exchange (Oct. 20, 2010) (File No. S7-14-10) (``Proxy Exchange
Letter on Concept Release'') (same).
\115\ See Fidelity Letter.
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In the 2010 Proposing Release, the Commission proposed to retain
the current form's requirement to report both the relevant security's
CUSIP number and its ticker symbol. One commenter recommended that a
ticker symbol be required only if a CUSIP number was unavailable since
certain securities listed on more than one exchange have multiple
ticker symbols.\116\ In response to this comment, we are proposing to
require reporting of only one security identifier. Reporting persons
would be required to report the security's CUSIP number unless it is
not available through reasonably practicable means (e.g., in the case
of certain foreign issuers).\117\ If the CUSIP number is not reported,
then Form N-PX would require the security's ISIN, unless it also is not
available through reasonably practicable means.\118\ Consistent with
current Form N-PX, a filer may omit disclosure of both the CUSIP and
ISIN identifier if neither is reasonably available through practicable
means.\119\
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\116\ ABA Letter (noting the difficulties in determining which
exchange is the principal exchange for the securities for purposes
of the disclosure).
\117\ See Item 1(b) of proposed Form N-PX; Special Instruction
D.2 to proposed Form N-PX.
\118\ See Item 1(c) of proposed Form N-PX; Special Instruction
D.2 of proposed Form N-PX. If the security's CUSIP number is
reported, then the ISIN would not be required to be reported.
\119\ See Instruction 2 to Item 1 of current Form N-PX; Special
Instruction D.2 of proposed Form N-PX.
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In addition, we are proposing two general amendments related to the
cover page of Form N-PX.\120\ Consistent with the 2010 proposal,
amended Form N-PX would contain a new section on the cover page to be
used where the filing is an amendment to a previously filed Form N-PX
report (e.g., to correct errors
[[Page 57491]]
in a previous filing or as part of the confidential treatment
process).\121\ Amendments to a Form N-PX report would be required to
either restate the original Form N-PX report in its entirety or include
only the additional information that supplements the information
already reported in a Form N-PX report for the same period.\122\ We
also propose to amend the form to allow for additional information so
long as it does not, either by its nature, quantity, or manner of
presentation, impede the understanding or presentation of the required
information.\123\ This optional disclosure would be placed at the end
of the cover page or, if it relates to a particular vote, a reporting
person could provide additional information about the matter or how it
voted after disclosing the required information about that vote.\124\
Form 13F provides similar flexibility, where filers use it, among other
things, to explain the reasons for an amendment to an earlier
filing.\125\ We believe this flexibility would also be useful in Form
N-PX and would facilitate a reporting person's ability to provide
additional information about a particular vote, or about its voting
practices in general.\126\
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\120\ We are also proposing a few other amendments to the cover
page of Form N-PX to accommodate manager reporting on Form N-PX. See
infra Section II.D.2 (discussing these proposed cover page
amendments).
\121\ See, e.g., Confidential Treatment Instruction 7 to
proposed Form N-PX (regarding the filing of amendments upon the
final adverse disposition of a confidential treatment request or the
expiration of confidential treatment); see also Section II.G infra.
\122\ See Special Instruction B.1 to proposed Form N-PX.
\123\ Special Instruction B.4 to proposed Form N-PX.
\124\ See Special Instructions B.4 and D.10 and Item 1(m) of
proposed Form N-PX.
\125\ See Special Instruction 5 to Form 13F.
\126\ Cf. ABA Letter (observing that Form N-PX does not readily
permit explanatory disclosure).
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Further, we propose to amend the current disclosure in Form N-PX
requiring a fund to identify whether a matter was proposed by the
issuer or by a security holder.\127\ To provide additional information
about matters proposed by security holders, we propose to require funds
to identify whether such matters are proposals or counterproposals. In
addition, we propose to clarify that the disclosure requirement would
apply to funds only, and not to managers. We are not proposing that
managers make this disclosure because say-on-pay votes relate
exclusively to matters proposed by issuers and not by security
holders.\128\
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\127\ See Item 1(f) of current Form N-PX; Item 1(g) of proposed
Form N-PX.
\128\ See 2010 Proposing Release, supra footnote 25, at text
accompanying n.77.
---------------------------------------------------------------------------
We are also proposing a technical amendment to Form N-PX that would
require reporting persons to disclose whether each reported vote was
``for or against management's recommendation.'' Current Form N-PX
requires funds to disclose whether a vote was ``for or against
management.'' \129\ The proposed amendment is intended to clarify that
Form N-PX should disclose how the vote was cast in relation to
management's recommendation on a particular proxy voting matter, as
opposed to how the vote may have affected management. In recognition
that there are some circumstances in which management may not provide a
voting recommendation on a given matter, we are also proposing an
instruction that would direct reporting persons to disclose ``none''
for the applicable matter in response to this disclosure
requirement.\130\
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\129\ See Item 1(i) of Form N-PX.
\130\ See Special Instruction D.8 of proposed Form N-PX.
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The Commission similarly proposed to amend the current Form N-PX
item to refer to whether a vote was ``for or against management's
recommendation'' in the 2010 proposal.\131\ Commenters generally
supported the proposed change.\132\ One commenter stated that we should
replace this item instead with a narrative description of what
management recommended for the vote, and allow readers to determine on
their own if the reporting person voted with or against
management.\133\ However, our intent in this proposal is to provide
useful and easily comparable information to shareholders. As a result,
we are proposing to update the required disclosure to clarify that the
report is required to disclose how the vote was cast in relation to
management's recommendation.\134\
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\131\ See 2010 Proposing Release, supra footnote 25, at text
accompanying n.90.
\132\ See CalPERS Letter; Levin Letter.
\133\ See Stone Letter.
\134\ Item 1(k) of proposed Form N-PX.
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Unlike the 2010 proposal, which would have removed the definitions
section in the instructions to Form N-PX, we are proposing to amend
Form N-PX to include a section containing definitions for purposes of
identifying terms used in Form N-PX.\135\ The terms for which
definitions are included are ``fund,'' ``institutional manager,''
``reporting person,'' and ``series.'' The current version of Form N-PX
also has a definitions section, but it refers filers to the definitions
in the Investment Company Act and the rules and regulations
thereunder.\136\ The terms used in the definitions section are the same
as those used in this release. We believe the proposed definitions
would clarify the terms used on Form N-PX and, in doing so, make the
application of the form's requirements to different categories of
reporting persons clear. The proposed definitions are also intended to
make the proposed form more concise and readable (e.g., by referring to
funds, rather than registered management investment companies,
throughout the form).
---------------------------------------------------------------------------
\135\ See General Instruction E to proposed Form N-PX.
\136\ General Instruction E to current Form N-PX.
---------------------------------------------------------------------------
We request comment on the additional proposed amendments to Form N-
PX, and, in particular, on the following issues:
41. Should we, as proposed, require the information in Form N-PX
reports to be disclosed in a standardized order? Would this facilitate
comparisons or be otherwise useful to users of this information? What
costs, if any, would be associated with standardization? Should the
requirement to standardize apply to managers, funds, or both? If we
standardize the order of the information in Form N-PX reports, should
we use the order set forth in our proposal, or would some other order
of information be more appropriate?
42. In proposing to require a standardized order to the information
in Form N-PX, we are also proposing clarifying language with respect to
the placement in a report for a fund containing multiple series. Would
this requirement make it easier for investors to review reports more
efficiently? Is there a different method of disclosing the votes of
multiple series that would assist our goal of providing useful and
comparative information?
43. Are there other ways we could make the disclosure in Form N-PX
easier to review and compare among reporting persons? If so, what are
they?
44. We are proposing to require reporting of only one security
identifier (either the CUSIP or the ISIN) on Form N-PX. Should we
require reporting persons to disclose both identifiers? If so, why?
Should we also require the ticker symbol in order to identify a
security? Why or why not? Is there a more appropriate identifier of
securities?
45. Should the cover page permit, as proposed, the inclusion of
optional information in addition to the information required by Form N-
PX? Are the conditions proposed with respect to the optional
information sufficient? Why or why not? In what instances might the
inclusion of additional information on the cover page impede the
comprehension of the required disclosure? For example, should we limit
this additional information by length? Or by
[[Page 57492]]
presentation? Are there other limits we should consider?
46. Should we allow reporting persons to provide additional
information relating to a particular vote after disclosing the required
information about that vote, as proposed? What types of information
might reporting persons wish to provide about particular votes? Does
the proposal provide sufficient flexibility for reporting persons to
provide such information, while also limiting the potential for
optional disclosure that would impede the understanding or presentation
of the required information?
47. To what extent do filers amend Form N-PX filings? What are the
typical reasons for an amendment? Should all amended Form N-PX filings
be required to restate all information in the prior filing? Should we
require any additional clarifying language on amendment filings?
48. As proposed, should we require funds to distinguish between
proposals and counterproposals when identifying matters proposed by
security holders? Is it sufficiently clear to a fund when a matter
proposed by a security holder should be classified as a proposal or
counterproposal?
49. Should we, as proposed, clarify that managers are not required
to disclose whether a matter was proposed by the issuer or by a
security holder? Are there other requirements in Form N-PX that should
only apply to funds? Are there requirements that should only apply to
managers?
50. Does the change of required disclosure on Form N-PX to ``for or
against management's recommendation'' clarify the intended purpose of
the disclosure? Why or why not? Is additional clarification necessary?
Should we instead require a narrative disclosure, as suggested by a
commenter?
51. We are proposing to amend Form N-PX to add specific definitions
to the instructions. Are the proposed definitions effective? Should we
modify or remove any of the proposed definitions? Are there other
definitions we should add to Form N-PX? Should we instead retain the
current definitions section or remove this section, as proposed in the
2010 proposal?
52. Should we modify the proposed content requirements in any way
for either managers or funds? Is there any information that we are
proposing to require that should not be required? Is there additional
information that should be required?
53. Should we provide any additional guidance on the contents of
the proposed Form N-PX requirements?
D. Joint Reporting and Related Form N-PX Amendments To Accommodate
Manager Reporting
1. Joint Reporting Provisions
Section 14A(d) of the Exchange Act requires a manager to report any
say-on-pay vote unless such vote is otherwise required to be reported
publicly by rule or regulation of the Commission. In order to implement
this provision and prevent duplicative reporting, we are proposing
three sets of amendments to Form N-PX to permit joint reporting, as
well as associated disclosure requirements to identify all of a given
manager's votes. The Commission proposed similar joint-reporting
provisions in the 2010 proposal, and commenters supported this
reporting framework.\137\ Based on our experience with Form 13F
reports, we believe that allowing consolidated reporting in this manner
would yield reported data that would be at least as useful as
separately reported data while reducing burden for reporting persons
who may prefer to report jointly. Furthermore, we expect that the
instructions we are proposing that require reports on Form N-PX to be
structured and machine-readable would allow tools to be developed so
that investors can sort and filter the data to view votes by the
relevant manager.
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\137\ See, e.g., ABA Letter; Letter of The Colorado Public
Employees' Retirement Association (Nov. 18, 2010) (``COPERA
Letter''); CII Letter; IAA Letter.
---------------------------------------------------------------------------
The first amendment would permit a single manager to report say-on-
pay votes in cases where multiple managers exercise voting power.\138\
This method for preventing duplicative reporting is similar to that
employed by Form 13F, which permits a single manager to include
information regarding securities with respect to which multiple
managers exercise investment discretion.\139\
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\138\ General Instruction C.1 to proposed Form N-PX.
\139\ See 15 U.S.C. 78m(f)(6)(B) (directing the Commission to
adopt such rules as it deems necessary or appropriate to prevent
duplicative reporting by two or more managers exercising investment
discretion with respect to the same amount); General Instruction 2
to Form 13F.
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In response to a similar provision in the 2010 proposal, one
commenter suggested that we require a manager who receives a ballot be
the primary filer that all other managers may reference in their
filings.\140\ We are not proposing this approach because we believe
that the joint-reporting provisions should provide flexibility to
address different types of voting arrangements. Moreover, under our
current proposal, the manager who receives the ballot would not be
required to report a say-on-pay vote on Form N-PX under all
circumstances (e.g., if it does not exercise voting power). Another
commenter requested guidance on whether an adviser or a sub-adviser
should be the primary filer when both exercise voting power. We do not
believe it is necessary to specify who should report under these
circumstances, because the joint reporting provisions are designed to
provide flexibility to reporting persons to divide that responsibility
among themselves or to each report independently.\141\ This may in
certain circumstances result in two managers reporting the same vote,
for instance if two managers provide voting advice regarding the same
securities and have not coordinated with each other regarding who will
make a report on Form N-PX. Because both managers would exercise voting
power (i.e., would influence the voting decision) under these
circumstances, we do not believe it would be inappropriate or confusing
for those managers to report the same vote separately. Like reports on
Form N-PX that rely on the joint reporting provisions, reports that
separately disclose the same votes would provide insight to clients and
other investors into how a manager voted.
---------------------------------------------------------------------------
\140\ See ISS Letter.
\141\ See Brown Letter.
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The second proposed amendment would permit a fund to report its
say-on-pay votes on behalf of a manager exercising voting power over
some or all of the fund's securities.\142\ This provision avoids a fund
and its adviser each having to file duplicative reports regarding the
same votes. Under our proposed approach, if a manager's say-on-pay
votes are reported by one or more funds over whose securities the
manager exercises voting power or by one or more other managers, the
non-reporting manager would be required to file a Form N-PX report that
identifies each manager and fund reporting on its behalf.\143\
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\142\ General Instruction C.3 to proposed Form N-PX.
\143\ General Instruction C.4 to proposed Form N-PX. See infra
Section II.D.2 (discussing this proposed requirement).
---------------------------------------------------------------------------
The third proposed amendment would permit affiliates to file joint
reports on Form N-PX notwithstanding that they do not exercise voting
power over the same securities. The Commission did not propose a
similar provision in 2010, but a few commenters suggested that we
broaden the circumstances where affiliates may file joint reports.\144\
These commenters
[[Page 57493]]
suggested that, to further promote operational efficiencies and ease
potential administrative burdens, the Commission should permit
affiliated managers to file jointly even where they do not jointly
exercise voting power, and allow managers to report at the holding
company level if they so choose.\145\ After considering these comments,
we are proposing to permit two or more persons who are affiliated
persons to file a single report on Form N-PX for all affiliated persons
in the group.\146\ This joint reporting provision is designed to
provide operational efficiencies without negatively affecting the
quality or accessibility of the information reported on Form N-PX.
---------------------------------------------------------------------------
\144\ See Letter of Fidelity Investments (Nov. 18, 2010)
(``Fidelity Letter'') (suggesting flexibility for affiliated
managers to jointly file Form N-PX even where they do not share
voting power); IAA Letter (suggesting flexibility for corporate
groups to report at the holding company or subsidiary level
regardless of whether they share voting authority).
\145\ Id.
\146\ See General Instruction C.2 to proposed Form N-PX; section
2(a)(3) of the Investment Company Act (defining ``affiliated
person'').
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In all three cases, where another reporting person reports say-on-
pay votes on a manager's behalf, the report on Form N-PX that includes
the manager's votes would be required to identify the manager (and any
other managers) on whose behalf the filing is made and separately
identify the securities over which the non-reporting manager exercised
voting power.\147\ The manager's report on Form N-PX also would have to
identify the other managers or funds reporting on its behalf.\148\ This
approach is designed to allow managers' clients and investors to easily
search for all votes where the manager exercised voting power, whether
or not those votes are reported on the manager's own Form N-PX.
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\147\ For example, in the case of a Form N-PX report that
includes votes of multiple affiliated managers, the filing must
identify each affiliate the report covers and separately identify
the securities for which each affiliate exercised voting power.
\148\ General Instructions C.5 and C.6 to proposed Form N-PX;
Special Instructions C.2 and D.6 to proposed Form N-PX. See infra
Sections II.D.3 and II.D.4 (discussing these proposed requirements
in more detail).
---------------------------------------------------------------------------
Use of the proposed joint reporting provisions would be optional.
For example, where multiple managers exercise voting power over the
same securities, the managers could choose to report the relevant say-
on-pay votes individually instead of relying on the joint reporting
provisions. If a manager does not rely on the joint reporting
provisions, it would not be subject to the disclosure requirements tied
to joint reporting that facilitate identification of all of a manager's
say-on-pay votes.\149\ In this case, the manager's report on Form N-PX
would provide its complete proxy voting record for say-on-pay votes
during the reporting period, without reference to any other reports on
Form N-PX, and would not include any votes where the manager did not
exercise voting power.
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\149\ In this case, the manager would report on its own behalf
and would not have to analyze if any other manager also is required
to report the vote.
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We request comment on the proposal to address duplicative reporting
and, in particular, on the following issues:
54. Should we, as proposed, permit a single manager to report say-
on-pay votes in cases where multiple managers exercise voting power?
Should we, as proposed, permit a manager to satisfy its reporting
obligations by reference to the Form N-PX report of a fund that
includes the manager's say-on-pay votes? Is there any reason not to
permit joint reporting? For example, would joint reporting confuse
investors or make Form N-PX harder to use? Would the potential for
confusion or for reduced usability decline if, as proposed, Form N-PX
reports were reported in a structured data language? \150\ Are there
other ways to address potentially duplicative reporting that are
consistent with section 14A(d) of the Exchange Act that we should
consider?
---------------------------------------------------------------------------
\150\ Proposed rule 14Ad-1(a); Item 1 of proposed Form N-PX.
---------------------------------------------------------------------------
55. Should the rule and form amendments provide, as we are
proposing, that two or more managers that are affiliated persons may
file a joint report on a single Form N-PX notwithstanding that the
managers do not exercise voting power over the same securities? Does
this standard permit a level of consolidated reporting by corporate
groups that is sufficient to address common arrangements? Are there
other frameworks for consolidated reporting that would be more
appropriate? Rather than use the Investment Company Act definition of
``affiliated person,'' is there a different standard we should use? For
example, similar to Form 13F, should we deem a manager to exercise
voting power over any securities over which any person under its
control exercises voting power?
56. Would the ability of a manager to report say-on-pay votes that
another manager or a fund also reports lead to investor confusion or
inappropriate double-counting? Should we prohibit a manager from
reporting say-on-pay votes that another manager or a fund also reports?
Should any such prohibition be qualified based on a manager's
knowledge, belief, or some other standard? Should a manager be required
to take any steps to determine whether another manager or fund is
reporting say-on-pay votes for the same securities? Would it confuse
investors if, as provided in our proposal, joint reporting of say-on-
pay votes is optional?
57. Are the joint reporting provisions necessary in light of
differences between our current proposal's standard for exercising
voting power and the 2010 proposal's standard of directly or indirectly
having or sharing the power to vote or to direct the voting of a
security? If so, are there any changes we should make to the joint
reporting provisions to better align with our proposed standard of
exercising voting power over a security?
2. The Cover Page
The Commission proposed changes to the cover page of Form N-PX in
the 2010 proposal to address the addition of managers as a class of
reporting persons and to help operationalize the joint reporting
provisions. Commenters did not address these cover page changes, and we
are proposing the same changes. Consistent with current Form N-PX cover
page requirements, the proposed cover page of Form N-PX would require
the name of the reporting person, the address of its principal
executive offices, the name and address of the agent for service, the
telephone number of the reporting person, identification of the
reporting period, and the reporting person's file number.\151\ We also
propose that a manager provide its CRD number and other SEC file
number, if any, which we believe would facilitate identification of
other regulatory filings of the manager and interrelationships between
managers who rely on the proposed joint reporting provisions.\152\ We
are proposing to require that the cover page include information to
identify more readily whether the reporting person is a fund or a
manager. If the reporting person is a manager, this information would
also help investors identify reports filed by other managers and funds
that contain say-on-pay votes of the reporting person under the joint
reporting provisions. Specifically, the reporting person would be
required to
[[Page 57494]]
check a box in order to identify the report as one of the following
four types:
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\151\ In the case of a fund, the file number would be an
Investment Company Act number beginning with ``811-.'' In the case
of a manager, the file number would be a Form 13F number beginning
with ``028-.''
\152\ A CRD number is a number assigned by the Financial
Industry Regulatory Authority's Central Registration Depository
system or by the Investment Adviser Registration Depository system.
The SEC file number would be any file number (e.g., 801-, 8-, 866-,
802-) assigned by the Commission to the manager other than the
manager's 13F file number, which all managers would be required to
provide on the cover page. See Special Instruction B.3 of proposed
Form N-PX.
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<bullet> Registered management investment company report;
<bullet> Manager ``voting'' report when the report contains all
say-on-pay votes of the manager;
<bullet> Manager ``notice'' when the report contains no say-on-pay
votes of the manager and all say-on-pay votes are reported by other
managers or funds under the joint reporting provisions; and
<bullet> Manager ``combination'' report when the report contains
some say-on-pay votes of the manager and some say-on-pay votes of the
manager are reported by other managers or funds under the joint
reporting provisions.
In addition, the cover page of a ``notice'' or ``combination''
report would include a list of the file numbers and names, as well as
CRD numbers (if any), of the other managers and funds whose Form N-PX
reports include say-on-pay votes of the reporting manager.\153\ This
cross-referencing, which is modeled after Form 13F requirements, will
help investors locate the reports of say-on-pay votes by other such
managers.\154\
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\153\ Special Instruction B.2 to proposed Form N-PX.
\154\ See Special Instruction 6 to Form 13F.
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We request comment on the proposed cover page of Form N-PX and, in
particular, on the following issues:
58. Should we adopt the cover page of Form N-PX as proposed, or
should we modify it in any way, e.g., by adding or removing
information? For example, should we require managers to include their
CRD numbers and SEC file numbers, if any, as proposed? Should we also
require managers to include their legal entity identifiers (``LEIs''),
if any? \155\ Would the proposed cover page adequately identify the
reporting person and the reporting period? Would the proposed cover
page sufficiently enable investors to identify a reporting person's
Form N-PX report for a given period and any amendments to that report?
Would the proposed cover page enable users to identify the type of
reporting person?
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\155\ An LEI is a unique identifier generally associated with a
single corporate entity and is intended to provide a uniform
international standard for identifying counterparties to a
transaction.
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59. In the case of a ``notice'' or ``combination'' report filed by
a manager, would the proposed cover page adequately enable investors to
identify reports filed by other persons that contain say-on-pay votes
for which the manager exercised voting power? Should these reports be
required to include a list of the file numbers and names, as well as
CRD numbers (if any), of the other managers and funds whose Form N-PX
reports include say-on-pay votes of the reporting manager, as proposed?
Is there other information that would help investors find a given
manager's votes?
60. Should ``notice'' filings contain any additional required
disclosure? As currently contemplated, does the proposed notice filing
requirement provide useful information to investors?
61. Is there additional information that would be helpful to
include on the cover page of Form N-PX?
3. The Summary Page
We are proposing to add a new summary page to Form N-PX to enable
investors to readily identify any additional managers (besides the
reporting person) with say-on-pay votes included on the Form N-PX
report.\156\ The summary page would be required in any fund's Form N-PX
report, as well as any manager's Form N-PX other than a ``notice''
filing.\157\ Commenters did not address the proposed summary page
requirements, and we are proposing the summary page requirements
largely without any changes from the 2010 proposal.
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\156\ For example, this disclosure might contain managers
included under the joint reporting requirements. See Special
Instruction B.2.b-d of proposed Form N-PX.
\157\ Special Instructions B.2.a-d of proposed Form N-PX. The
summary page would not be required in a ``notice'' report by
managers because, since the notice report would not contain any say-
on-pay votes at all, it would not report any say-on-pay votes of
other managers.
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The summary page of Form N-PX would require reporting persons to
identify the names and total number of additional managers with say-on-
pay votes included in the report in list format.\158\ The proposed
instructions to Form N-PX specify the contents of this information,
including the title, column headings, and format.\159\
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\158\ Special Instruction C.1 to proposed Form N-PX.
\159\ Special Instruction C.2 to proposed Form N-PX.
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If a Form N-PX report includes the say-on-pay votes of additional
managers, the summary page list would be required to include all such
managers together with their respective Form 13F file numbers and, if
any, CRD numbers and other SEC file numbers.\160\ In addition, and
similar to Form 13F, the proposal would require the reporting person to
assign a number (which need not be consecutive) for each such manager,
and present the list in sequential order.\161\ These numbers would help
identify the particular manager(s) who exercised the power to vote the
securities. While we are proposing the sequential numbering requirement
to make the list easier to use, the proposal would permit non-
consecutive numbering to allow managers to retain the same number
across filings of different reporting persons and different time
periods.
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\160\ Special Instruction C.2.b to proposed Form N-PX.
\161\ Id.; see also Special Instruction 8.b to Form 13F.
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If a Form N-PX filing does not disclose the proxy votes of a
manager other than the reporting person, the reporting person would
enter the word ``NONE'' under the title and would not include the
column headings and list entries.\162\
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\162\ Special Instruction C.2.a to proposed Form N-PX.
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To the extent a fund's report on Form N-PX includes the votes of
multiple series, the summary page would require the name and the series
identifier (if any) of each series.\163\ We believe this would assist
investors in discerning the funds covered by the Form N-PX report.
While the Commission did not propose this requirement in 2010, the
Commission has since adopted Form N-CEN and Form N-PORT, which contain
similar series identification requirements for funds.\164\
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\163\ Special Instruction C.3 to proposed Form N-PX.
\164\ Item B.6.a.ii of Form N-CEN; Item A.2 of Form N-PORT.
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We request comment on the proposed summary page of Form N-PX and,
in particular, on the following issues:
62. Should we adopt the summary page of Form N-PX, as proposed, or
should we modify it in any way? For example, should we require the
inclusion of additional information with respect to the additional
managers in the list? What information would be helpful for investors
to review in summary format? Would such information be practicable for
the reporting person to acquire and report? Should we remove any of the
proposed information requirements, such as the requirements for CRD
numbers and other SEC file numbers for managers, if any?
63. Would the proposed sequential and/or non-consecutive listing of
other managers in the summary page help investors identify specific
managers? Is the other identifying information we are proposing to
require (including a manager's 13F file number and, if any, CRD number
and other SEC file numbers) sufficient for purposes of identifying
managers whose votes are included in a given report?
[[Page 57495]]
64. Would the proposed summary page enable investors to readily
identify any managers whose say-on-pay votes are included in a Form N-
PX report? Would additional formatting constraints be helpful?
65. Should there be additional summary page requirement differences
between funds and managers?
66. Should we, as proposed, require fund Form N-PX reports that
include the votes of multiple series to identify on the summary page
the names and EDGAR identifier of each series that the report covers?
Is there other information we should require of funds that would enable
investors to more easily identify which funds the report covers? For
example, should we also require disclosure of the series' LEI?
67. Should we provide any exceptions to the summary page reporting
requirement? If so, how should any such exception be defined?
68. We request information on how clients of managers or other
investors would utilize the information contained on the summary page.
Would it provide useful data?
4. Other Proposed Amendments to Form N-PX To Accommodate Manager
Reporting
We are proposing other modifications to the format and content of
the information currently required by Form N-PX to accommodate the
proposed requirement for managers to report on Form N-PX. Specifically,
we are proposing to require a manager to report the number of shares
the manager is reporting on behalf of another manager pursuant to the
joint reporting provisions separately from the number of shares the
manager is reporting only on its own behalf.\165\ A manager would also
be required to separately report shares when the groups of managers on
whose behalf the shares are reported are different. For example, if the
reporting manager is reporting on behalf of Manager A with respect to
10,000 shares and on behalf of Managers A and B with respect to 50,000
shares, then the groups of 10,000 and 50,000 shares must be separately
reported. Similarly, a fund would be required to separately report
shares that are reported on behalf of different managers or groups of
managers.\166\ We believe this requirement would further our goal of
providing meaningful information to investors by allowing investors to
clearly see how a particular manager exercised voting power.
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\165\ See Special Instruction D.6 to proposed Form N-PX. See
also supra Section II.D.1 (discussing the proposed joint reporting
provisions).
\166\ See id. We are also clarifying, as a commenter suggested,
that reporting persons would not be required to report shares
separately when they are not relying on the joint reporting
provisions, even if another manager exercised voting power over some
of the shares reported. See IAA Letter.
---------------------------------------------------------------------------
One commenter suggested limiting disclosure regarding manager
shared voting power to the summary page of Form N-PX.\167\ We are not
proposing this approach because we believe it would make it difficult
for investors to identify which entities are responsible for the
particular say-on-pay votes reported, which would undermine the purpose
of reporting say-on-pay votes. The summary page is intended to identify
any additional managers (besides the reporting person) with say-on-pay
votes included on the Form N-PX report. We believe disclosure with
respect to shared voting power should be included in the body of Form
N-PX containing proxy voting information, in order to assist
identifying which of the votes reported on Form N-PX were those over
which the manager exercised voting power.
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\167\ See ISS Letter.
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We request comment on the other proposed amendments to Form N-PX to
accommodate new reporting requirements for managers, including the
following:
69. Should we, as proposed, require a reporting person relying on
the joint reporting provisions to identify, for each applicable vote
reported, each manager who exercised voting power as to the securities
voted? Why or why not? Alternatively, would it be sufficient to require
a reporting person to disclose on the summary page the managers for
whom it is reporting, without identifying, for each vote reported, the
managers that exercised voting power?
70. Are there other changes we should make to Form N-PX to
accommodate manager say-on-pay vote reporting requirements?
E. Form N-PX Reporting Data Language
We are proposing to require reporting persons to file reports on
Form N-PX in a structured data language.\168\ In particular, and as
discussed in more detail below, we are proposing to require filing of
Form N-PX reports in a custom eXtensible Markup Language (``XML'')-
based structured data language created specifically for reports on Form
N-PX (``custom XML'').\169\ We believe use of a custom XML language
would make it easier for reporting persons to prepare and submit the
information required by Form N-PX accurately, and would make the
submitted information more useful.
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\168\ See General Instruction D.2. of proposed Form N-PX
(specifying that reporting persons must file reports on Form N-PX
electronically on EDGAR, except as provided by the form's
confidential treatment instructions, and consult the EDGAR Filer
Manual for EDGAR filing instructions). See also 17 CFR 232.301
(requiring filers to prepare electronic filings in the manner
prescribed by the EDGAR Filer Manual). We are also proposing to
amend rule 101(a)(1)(iii) of Regulation S-T to provide that reports
filed pursuant to section 14A(d) of the Exchange Act must be
submitted in electronic format. Reports filed pursuant to section 30
of the Investment Company Act are already subject to electronic
filing. See rule 101(a)(1)(iv) of Regulation S-T.
\169\ This would be consistent with the approach used for other
XML-based structured data languages created by the Commission for
certain EDGAR Forms, including the data languages used for reports
on each of Form N-CEN, Form N-PORT, and Form 13F.
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Reports on Form N-PX are currently required to be filed in HTML or
ASCII.\170\ We understand that, in order to prepare reports in HTML and
ASCII, reporting persons generally need to reformat required
information from the way the information is stored for normal business
uses. In this process, reporting persons typically strip out
incompatible metadata (i.e., syntax that is not part of the HTML or
ASCII specification) that their business systems use to ascribe meaning
to the stored data items and to represent the relationships among
different data items. The resulting code, when rendered in an end-
user's web browser, is comprehensible to a human reader, but it is not
suitable for automated validation or aggregation.
---------------------------------------------------------------------------
\170\ See Regulation S-T, 17 CFR 232.101(a)(1)(iv); 17 CFR
232.301; EDGAR Filer Manual (Volume II) version 58 (June 2021), at
5-1 (requiring EDGAR filers generally to use ASCII or HTML for their
document submissions, subject to certain exceptions).
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The Commission requested comment in both the 2010 Proposing Release
and the Proxy Mechanics Concept Release on whether to require reporting
of the information required by Form N-PX in a structured data
language.\171\ Among other things, we requested comment on the
feasibility of identifying proxy voting matters in a uniform way and on
the costs of providing data in a
[[Page 57496]]
structured data language.\172\ Commenters on these releases were mixed.
Commenters that expressed support suggested that structured data would:
Improve investor analysis or allow for more informed decision-making,
improve third-party analyses of voting information or reduce the costs
associated with preparing them, and generally benefit investors or
improve the usefulness and accessibility of reported data.\173\ The
Commission's Investor Advisory Committee also recommended that reports
on Form N-PX be filed in a structured data language, stating that
investors would be better able to assess the voting records of mutual
funds.\174\ We believe that the modifications we are proposing
regarding the identification of proxy voting matters would result in
reported data that is sufficiently standardized to make structured data
useful for interested parties.\175\
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\171\ 2010 Proposing Release, supra footnote 25, at text
subsequent to footnote 91 (``Are there methods other than
standardizing the order of information that would render the
information reported on Form N-PX more useful? Should we require
reporting persons to provide the information reported on Form N-PX
in interactive data format?''); Proxy Mechanics Concept Release,
supra footnote 60 at text accompanying n. 225. The 2010 Proposing
Release and the Proxy Mechanics Concept Release referred to an
``interactive data format.'' Some comments on these releases
similarly referred to an ``interactive data format.'' For purposes
of this release, we consider the terms ``interactive data format''
and ``structured data language'' to be synonymous and use the terms
``structured data language'' or ``structured data'' throughout for
consistency.
\172\ 2010 Proposing Release, supra footnote 25, at requests for
comment subsequent to n. 91; Proxy Mechanics Concept Release, supra
footnote 60, at requests for comment at n. 225.
\173\ Letter of Broadridge Financial Solutions (Oct. 19, 2010)
(File No. S7-14-10) (``Broadridge Letter on Concept Release'');
Florida Board Letter on Concept Release,; ISS Letter on Concept
Release; Letter of Dominic Jones (Nov. 2, 2010) (``Jones Letter'');
Ostrovsky Letter on Concept Release; Proxy Exchange Letter on
Concept Release; Letter of Shareowners Education Network (Oct. 20,
2010) (File No. S7-14-10) (``Shareholder Education Letter on Concept
Release''); Towns Letter on Concept Release; Letter of
<a href="http://VoterMedia.org">VoterMedia.org</a> (Sept. 29, 2010) (File No. S7-14-10) (``VoterMedia
Letter on Concept Release'').
\174\ See supra footnote 22.
\175\ See supra Section II.C.1 (Identification of Proxy Voting
Matters). Some commenters agreed with statements in the 2010
Proposing Release and the Proxy Mechanics Concept Release suggesting
that having uniform identification of proxy voting matters would
make structured data more useful. See Fidelity Letter on Concept
Release; ICI Letter on Concept Release; see also Ostrovsky Letter on
Concept Release (indicating that uniform identification is
essential, but feasible).
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Two commenters on the Proxy Mechanics Concept Release urged the
Commission to evaluate its then-new structured data requirements before
adopting similar requirements elsewhere.\176\ In the time since the
Commission issued the 2010 Proposing Release and the Proxy Mechanics
Concept Release, we have gained additional experience with different
reporting data languages, including with reports in an XML-based
structured data language. For example, we have used customized XML data
languages for reports filed on Form N-CEN, Form N-PORT, and Form
13F.\177\ We have found the XML-based structured data languages used
for those reports allow investors to aggregate and analyze reported
data in a much less labor-intensive manner than data filed in ASCII or
HTML. Based on our consideration of comments and our understanding of
how fund and managers currently disclose required information in a
structured data language, we believe that requiring a custom XML
language for Form N-PX would minimize reporting costs while yielding
reported data that would be more useful to investors. Reporting persons
would be able to, at their option, either submit XML reports directly
or use a web-based reporting application developed by the Commission to
generate the reports, as managers are able to do today when submitting
holdings reports on Form 13F.
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\176\ Fidelity Letter on Concept Release; ICI Letter on Concept
Release.
\177\ See e.g., Investment Company Reporting Modernization,
Investment Company Act Release No. 32314 (Oct. 13, 2016) [81 FR
81870 (Nov. 18, 2016)] (adopting Form N-CEN and Form N-PORT);
Adoption of Updated EDGAR Filer Manual, Securities Act Release 9403
(May 14, 2013) [78 FR 29616 (May 21, 2013)] (requiring managers to
report their holdings in an XML-based structured data language on
Form 13F).
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Some commenters observed that interested data users can procure
structured voting data from third-party service providers.\178\ Another
commenter, however, expressed concerns with the cost,
comprehensiveness, and timeliness of the data cited by those
commenters.\179\ While similar data may be available commercially, we
believe that this information should be made freely available to
investors and that current users of data made available by third-
parties could nonetheless benefit from structured Form N-PX reports if
the costs associated with third-party data analysis fell.
---------------------------------------------------------------------------
\178\ Fidelity Letter on Concept Release; ICI Letter on Concept
Release.
\179\ See Ostrovsky Letter on Concept Release.
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One commenter stated that it did not believe shareholders were
interested in proxy voting information using a structured data
language.\180\ Other commenters and the Investor Advisory Committee,
however, have indicated that investors would benefit from proxy voting
data reported in a structured data language. Among other things,
commenters have noted that structured data would improve investor
analysis or allow for more informed decision-making.\181\ We believe
that reporting in custom XML language will allow investors to aggregate
and analyze the reported data in a much less labor-intensive manner.
---------------------------------------------------------------------------
\180\ ICI Letter on Concept Release.
\181\ See supra footnote 173 and accompanying text.
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One commenter stated that a structured data reporting requirement
would increase reporting costs, noting the costs of reporting data in
both the current ASCII or HTML markup language, as well as any
structured data language.\182\ Another commenter suggested it would not
be necessary to continue to require ASCII or HTML reporting, in
addition to reporting in a structured data language, because data in a
structured data language could be translated to human-readable form in
an automated manner and at low cost.\183\ In order to minimize
reporting burdens, we are proposing to replace the ASCII or HTML
reporting requirement with the custom XML reporting requirement. We
recognize that current Form N-PX filers could bear some additional
reporting costs related to adjusting their systems to a different data
language. However, in the intervening time period since the 2010
proposal, many reporting persons have acquired substantial experience
with reporting on web-based applications (or directly submitting
information in a structured data language). We believe that aligning
Form N-PX's reporting data language with the type of data language of
other required reports may reduce costs and introduce additional
efficiencies for reporting persons already accustomed to reporting
using structured data and may reduce overall reporting costs in the
longer term.\184\
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\182\ ICI Letter on Concept Release.
\183\ Ostrovsky Letter on Concept Release.
\184\ See infra Section IV.
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Finally, a commenter indicated that there would be costs associated
with rendering the reported data in a form that could be comprehensible
to a human reader.\185\ We agree that there would be some costs
associated with rendering XML data in a human-readable format, and we
believe that it is appropriate for the Commission to bear these costs.
We are proposing that the Commission would develop electronic ``style
sheets'' that, when applied to the reported XML data, would represent
that data in human-readable form. We developed similar style sheets for
holdings data reported by managers in XML on Form 13F, and they have
yielded useful, consistently formatted documents.
---------------------------------------------------------------------------
\185\ ICI Letter on Concept Release (noting that the Proxy
Mechanics Concept Release did not make clear who would bear those
costs); but see Ostrovsky Letter on Concept Release (characterizing
these costs as ``trivial'').
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We request comment on the reporting data language we are proposing
to require for reports filed on Form N-PX, and, in particular, on the
following issues:
[[Page 57497]]
71. Should we require, as we are proposing, Form N-PX reports to be
filed in a custom XML language? Is a custom XML language the
appropriate type of data language for Form N-PX reports? Why or why
not? If another structured data language would be more appropriate,
which one, and why?
72. Would this proposed requirement yield reported data that is
more useful to investors, compared with not requiring Form N-PX to be
filed in a custom XML language, or requiring Form N-PX to be filed in a
structured data language other than a custom XML language?
73. Are the standardized identification requirements we are
proposing compatible with the proposed reporting data language?
74. Should any subset of funds or managers be exempt from the
proposed structured data reporting requirement? If so, what subset and
why?
F. Time of Reporting
Currently, funds must report their proxy voting records annually on
Form N-PX no later than August 31 of each year, for the most recent 12-
month period ended June 30.\186\ We are proposing to retain the same
reporting timeframe for funds and to apply this reporting timeframe to
managers' reporting of say-on-pay votes.\187\ Commenters on the 2010
proposal generally supported retaining the current reporting timeframe,
though certain commenters advocated for longer or shorter
timeframes.\188\
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\186\ See rule 30b1-4 under the Investment Company Act. We refer
to this twelve-month period ending on June 30 of each year as the
``reporting timeframe'' or the ``timeframe.''
\187\ Proposed rule 14Ad-1(a); General Instruction A to proposed
Form N-PX. The timing of a manager's Form N-PX filing obligations
would differ when the manager enters and exits from the obligation
to file Form 13F reports. See infra Section II.J.
\188\ See, e.g., ABA Letter; CalPERS Letter; CII Letter; COPERA
Letter; Glass Lewis Letter I; but see Jones Letter (requesting that
managers and funds be required to report their votes on Form N-PX
within four business days of each shareholder meeting); Letter of
Adrienne Brown of Nationwide Investment Management Group (Nov. 18,
2010) (``Brown Letter'') (suggesting a later filing deadline, such
as September or October); Fidelity Letter (suggesting the filing
deadline be moved from August 31 to October 31).
---------------------------------------------------------------------------
We preliminarily believe that the proposed reporting timeframe for
managers--and retaining the current reporting timeframe for funds--
appropriately balances the benefits of prompt reporting and the burdens
associated with that reporting. We are not proposing to require, as
suggested by one commenter, that managers and funds report their votes
shortly after the relevant shareholder meeting.\189\ We preliminarily
believe that the benefits of public reporting of proxy votes by funds
and managers would not significantly increase with faster reporting and
that publicly reporting each vote individually would make it difficult
for investors reading a manager's Form N-PX reports to evaluate overall
patterns in the manager's voting behavior.
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\189\ See Jones Letter.
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As it relates to managers' reporting of say-on-pay votes, the
relevant proposals are typically unique to the issuer in question and
votes may be heavily dependent on the particular facts and
circumstances applicable to that issuer. Moreover, because such votes
are reported on a retrospective basis, investors will not necessarily
be able to use the information reported by managers on Form N-PX to
engage in a dialogue with their manager about its voting policies or to
switch to a manager who will vote differently with respect to any
specific say-on-pay vote.\190\ In the context of fund reporting of
proxy votes, however, we are mindful of the fact that similar proposals
often appear on the ballots of many issuers in a given proxy season,
especially those issuers within the same industry. In these instances,
timelier public reporting of funds' proxy votes has the potential to
facilitate fund shareholders' ability to monitor their funds'
involvement in the governance activities of portfolio companies,
including within a single proxy season.\191\ We request comment below
on whether the benefits of timelier reporting of proxy votes--including
those of both managers and funds--might outweigh any potential
drawbacks.
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\190\ Requiring managers to disclose their intended votes on a
prospective basis would allow investors to make such a change, but
such an approach would be inconsistent with the statute and we are
not proposing it here.
\191\ Shareholders of a given fund may be able to monitor the
fund's proxy voting record to evaluate whether the fund's votes are
consistent with its disclosure. This information would promote
shareholders' ability to engage with fund management on timely
issues in the midst of proxy season, including as it relates to
future votes on the same subject matter at another issuer.
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We also are not proposing, as some commenters on the 2010 proposal
suggested, to extend the deadline for filing reports from August 31 to
a later date because of additional proposed disclosure
requirements.\192\ We believe that further delay after the close of the
reporting period is unnecessary, particularly in light of other changes
from the 2010 proposal that we believe should result in reporting
persons having sufficient time to gather the data necessary to make the
filing, such as the reduction in the quantitative information required
to be disclosed.\193\
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\192\ See Brown Letter; Fidelity Letter.
\193\ See supra Section II.C.3 (discussing modifications to the
proxy voting information required on Form N-PX).
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We request comment on the proposed reporting timeframe for filing
Form N-PX reports and, in particular, on the following:
75. Should we, as proposed, require funds to file their proxy
voting records on the same reporting timeline as currently required?
Would investors benefit from more timely reporting of funds' proxy
votes? Please explain. Do funds need more time than currently permitted
to file Form N-PX reports that include the new disclosure this proposal
would require? If so, why, and how much time?
76. Should we, as proposed, require managers to report their say-
on-pay votes annually on Form N-PX not later than August 31, for the
most recent 12-month period ended June 30? Should we instead require
reporting as of some other period end date (e.g., May 31 or December
31), or with a shorter or longer lag period after the end reporting
period (e.g., a 45-day lag period to align with Form 13F)?
77. Should we require reporting for managers and funds to occur
more frequently than annually, such as monthly, quarterly, or close in
time to each vote? Should we require more frequent voting to be
reported on firm websites and annual reporting on Form N-PX? For
example, should we require funds and managers to report their votes on
a monthly or quarterly basis on their websites, and annually on Form N-
PX? Would requiring more frequent reporting to occur on managers' and
funds' websites rather than on Form N-PX mitigate any of the potential
issues with more frequent reporting, such as the cost of reporting or
the ability of investors to read and identify patterns in fund or
manager voting records?
78. Would investors benefit from more frequent voting disclosure?
For example, would more frequent disclosure enhance fund shareholders'
ability to monitor their funds' involvement in the governance
activities of portfolio companies? Conversely, would investors
generally be most interested in analyzing a reporting person's voting
record more holistically rather than focusing on individual votes on
more frequent intervals or shortly after a vote is held? What are the
advantages and disadvantages of more frequent reporting of proxy votes?
79. Certain types of funds, such as index funds and the majority of
[[Page 57498]]
exchange-traded funds, provide a degree of transparency as to their
holdings more frequently than required by Form N-PORT. Transparency as
to these funds' holdings arises as a result of either: (1) Full
portfolio disclosure (in the case of transparent ETFs), or (2) the
tracking of an index whose constituents and weightings are transparent
(in the case of index funds). Because of this transparency, more
frequent disclosure of these funds' proxy voting records might not
contribute to the potential risks otherwise associated with such a
requirement. Should the Commission require more frequent or timely
disclosure of proxy voting information for these or other types of
funds whose characteristics mitigate the risks of such a requirement?
80. Should funds and managers file Form N-PX reports on the same
schedule, as proposed? Are there reasons they should be subject to
different reporting schedules?
G. Requests for Confidential Treatment
The information filed on Form N-PX would be publicly available
through the Commission's EDGAR system, as is information filed on Form
13F.\194\ Certain managers filing reports on Form 13F request
confidential treatment of certain or all the positions reported on
their Form 13F, and those managers may request that confidential
information reported on their Form 13F also be treated as confidential
on their Form N-PX.\195\ Pursuant to 17 CFR 240.24b-2 under the
Exchange Act (``rule 24b-2''), which governs requests for confidential
treatment of information required to be filed under the Act, a manager
can request confidential treatment of information reported on proposed
Form N-PX.\196\
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\194\ See rule 80(c)(3) promulgated under the Freedom of
Information Act [17 CFR 200.80(c)(3)] (stating that filings made
through the EDGAR system are publicly available on the Commission's
website).
\195\ Requests for confidential treatment can be based either on
a claim that the information would identify securities held by the
account of a natural person or an estate or trust, other than a
business trust or investment company, in which case the Commission
is required to keep the information confidential indefinitely, or on
a claim that the information is confidential commercial or financial
information (consistent with the requirements of Freedom of
Information Act (``FOIA'') Exemption 4), in which case the grant is
discretionary and generally only for a period of time. See generally
sections 13(f)(4) and (5) of the Exchange Act [15 U.S.C. 78m(f)(4)]
[15 U.S.C. 78m(f)(5)]; Form 13F Instructions for Confidential
Treatment Requests; Rulemaking for EDGAR System, Investment Company
Act Release No. 23640 (Jan. 12, 1999) [64 FR 2843].
\196\ See 17 CFR 240.24b-2; Confidential Treatment Instruction 1
to proposed Form N-PX. The confidential treatment instructions we
are proposing for Form N-PX are based on the Form 13F confidential
treatment instructions, which apply in similar circumstances. See
Form 13F Instructions for Confidential Treatment Requests.
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Managers seeking confidential treatment for information on their
Form 13F are required to file multiple lists of securities. One, filed
publicly, lists only those securities for which it is not seeking
confidential treatment, as well as a statement indicating that
confidential information has been omitted and filed with the
Commission. Managers must also file a separate list including those
securities positions for which the manager seeks confidential
treatment. Confidential treatment granted by the Commission may be
subject to an expiration date, as is often the case when confidential
treatment is granted to protect commercial information, such as a
position that is still being built. Therefore, when the confidential
treatment period ends, or if the confidential treatment request is
denied, the manager must file an additional report on Form 13F publicly
disclosing those securities for which confidential treatment expired,
or was denied.
We are proposing instructions in Form N-PX that are designed to
provide a similar opportunity to prevent confidential information that
is protected from disclosure on Form 13F from being disclosed on Form
N-PX.\197\ These instructions provide that a person requesting
confidential treatment of information filed on Form N-PX should follow
the same procedures set forth in Form 13F for filing confidential
treatment requests. They also prescribe the required content of a
confidential treatment request and the required filing of information
that is no longer entitled to confidential treatment.\198\ For
instance, the confidential treatment request would be required to
provide enough factual support for the request, including a
demonstration that the information is both customarily and actually
kept private by the reporting person, and that release of this
information could cause harm to the reporting person. Although this
differs somewhat from the current language in Form 13F regarding
confidential treatment requests, we are proposing this standard in Form
N-PX to conform to a June 2019 U.S. Supreme Court decision that
overturned the standard for determining whether information is
``confidential'' under Exemption 4 of the FOIA on which the current
Form 13F instruction is based.\199\
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\197\ Section 13(f)(4) of the Exchange Act provides that the
Commission, as it determines to be necessary or appropriate in the
public interest or for the protection of investors, may delay or
prevent public disclosure of information filed on Form 13F in
accordance with the Freedom of Information Act. Section 13(f)(4)
also provides that any information filed on Form 13F that identifies
the securities held by the account of a natural person or an estate
or trust (other than a business trust or investment company) shall
not be disclosed to the public. As a result, we are unable to
conclude, in advance, that confidential treatment of information
filed on Form N-PX could, under no circumstances, be appropriate as
suggested by one commenter. See Barnard Letter.
\198\ Confidential Treatment Instructions to proposed Form N-PX.
Upon the final adverse disposition of a request for confidential
treatment, or upon the expiration of the confidential treatment, a
reporting person would be required to electronically submit within
six business days an amendment to its Form N-PX reporting the
previously confidential proxy voting information. See Confidential
Treatment Instruction 7 to proposed Form N-PX. Such amendment
specifically would make publicly available through the Commission's
EDGAR system the proxy voting information that previously was
confidential. In the event that the required amendment is not filed,
the Commission could make the proxy voting information available to
the public through other means.
\199\ 5 U.S.C. 552(b)(4). See Food Marketing Institute v. Argus
Leader Media, 139 S.Ct. 2356 (2019) (``Food Marketing v. Argus
Leader'') (stating that ``[a]t least where commercial or financial
information is both customarily and actually treated as private by
its owner and provided to the government under an assurance of
privacy, the information is `confidential' within the meaning of
Exemption 4''); see also Reporting Threshold for Institutional
Investment Managers, Exchange Act Release No. 89290 (July 10, 2020)
[85 FR 46016 (July 31, 2020)] (proposing a similar conforming
amendment to the confidential treatment instructions in Form 13F).
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In light of the public disclosure intent of section 14A(d) and the
confidential treatment requirements of rule 24b-2 under the Exchange
Act, we believe that confidential treatment generally would not be
merited solely in order to prevent proxy voting information from being
made public. One commenter on the 2010 Proposing Release suggested that
we should expand the standards for requesting and obtaining
confidential treatment to cover situations in which a manager has a
confidentiality agreement with a client regarding disclosure of
portfolio information.\200\ We do not believe that such a private
agreement should override the requirement to report proxy voting
information publicly. We believe that confidential treatment could be
justified only in narrowly tailored circumstances. For example,
confidential treatment may be justified when a manager has filed a
confidential treatment request for information reported on Form 13F
that is pending or has been granted and where confidential treatment of
information filed on Form N-PX would be necessary in order to protect
information that is the subject of such Form 13F confidential treatment
request, and the information is also
[[Page 57499]]
customarily treated as private, non-public information by the
manager.\201\
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\200\ Mayer Brown Letter.
\201\ In the case of information that is not reported on Form
13F but would have been the subject of a Form 13F confidential
treatment request if it were required to be reported (for example, a
de minimis position that is not required to be reported on Form 13F
but would have been eligible for confidential treatment if it were
required to be reported on the form), we would follow similar
procedures and apply similar standards to those followed for reports
on Form 13F in processing requests for confidential treatment of
information filed on Form N-PX.
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Existing Form N-PX does not include any confidential treatment
instructions and, apart from Form N-PX, funds already disclose their
portfolio holdings.\202\ As a result, we are not aware of any situation
in which confidential treatment would be justified under rule 24b-2 for
information filed by funds on Form N-PX.
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\202\ Portfolio holdings information is required to be disclosed
by funds on a quarterly basis with a 60-day lag, through semiannual
shareholder reports pursuant to rule 30e-1 under the Investment
Company Act [17 CFR 270.30e-1] and Form N-PORT [17 CFR 274.150]. An
exception exists for ``miscellaneous securities'' comprising less
than 5% of a fund's portfolio and held for less than one year, but
the number of votes relating to the securities in that category is
generally expected to be small because of its short-term nature.
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We request comment on the proposed provisions regarding
confidential treatment requests, including the following:
81. Should we modify the proposed confidential treatment provisions
in any way? Would it be appropriate to tie the confidential treatment
provisions for Form N-PX to the confidential treatment provisions for
Form 13F, for example by automatically granting confidential treatment
for positions reported on Form N-PX when confidential treatment has
been granted for those positions on Form 13F?
82. As proposed, should we require reporting persons to file
confidential treatment requests for Form N-PX in the same manner as
Form 13F requires? Are there reasons for the filing processes for
confidential treatment requests to differ between the two forms? If so,
what approach should we permit or require reporting persons to use to
file confidential treatment requests for Form N-PX?
83. Do the proposed instructions for confidential treatment
requests appropriately reflect the current requirements of FOIA,
including the effect of the U.S. Supreme Court's June 24, 2019,
decision in Food Marketing Institute v. Argus Leader Media on the type
of information that is required to substantiate confidential treatment
in accordance with rule 24b-2 under the Exchange Act?
84. Are there circumstances in which say-on-pay votes should be
publicly disclosed but our proposal could permit confidential
treatment? Alternatively, are there circumstances in which our proposal
would require public disclosure of a say-on-pay vote but where
confidential treatment should be granted? Please explain.
85. Should we allow funds to request confidential treatment under
some circumstances? For example, should we allow a fund to request
confidential treatment of votes on securities that were reported in the
``miscellaneous securities'' category of its most recent disclosure of
its portfolio holdings? If so, why should the result under the proposed
rule differ from the result under current Form N-PX?
H. Proposed Website Availability of Fund Proxy Voting Records
When the Commission adopted Form N-PX in 2003, it also required a
fund to disclose that its proxy voting record is available to
shareholders, either on (or through) the fund's website or upon
request.\203\ We understand that, currently, most funds make their
proxy voting records available to shareholders upon request but do not
provide this information on their websites. We are proposing amendments
to Forms N-1A, N-2, and N-3 to require a fund to disclose that its
proxy voting record is publicly available on (or through) its website
and available upon request, free of charge in both cases.\204\ We
believe this proposed change would make a fund's proxy voting record
more accessible to investors. Investors' access to the internet has
increased substantially since 2003, and many investors go to fund or
intermediary websites to get information about a fund.\205\ Because the
proposal would require funds to file Form N-PX reports in a custom XML
language, we are proposing to specify that the proxy voting record the
fund posts on its website and provides upon request must be in a human-
readable format. A fund could comply with this requirement by using the
human-readable version of its Form N-PX report that would appear on
EDGAR (e.g., by providing a direct link on its website to the HTML-
rendered Form N-PX report on EDGAR).
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\203\ See Form N-PX Adopting Release, supra footnote 7; Items
17(f) and 27(d)(5) of Form N-1A; Items 18.16, 24.6.d, and 24.8 of
Form N-2; Item 23(f) and Instructions 4(d) and 6 to Item 31(a) of
Form N-3.
\204\ See proposed amendments to Items 17(f) and 27(d)(5) of
Form N-1A; proposed amendments to Items 18.16, 24.6.d, and 24.8 of
Form N-2; proposed amendments to Item 23(f) and Instructions 4(d)
and 6 to Item 31(a) of Form N-3. The Commission has proposed other
amendments that would replace current Item 27(d)(5) of Form N-1A
with disclosure about the availability of different types of
information for investors, including proxy voting information. See
Tailored Shareholder Reports, Treatment of Annual Prospectus Updates
for Existing Investors, and Improved Fee and Risk Disclosure for
Mutual Funds and Exchange-Traded Funds; Fee Information in
Investment Company Advertisements, Investment Company Act Release
No. 33963 (Aug. 5, 2020) [85 FR 70716 (Nov. 5, 2020)] (``Tailored
Shareholder Reports Proposing Release''). If those amendments were
to be adopted, we would not amend current Item 27(d)(5) of Form N-1A
as part of this rulemaking because it would no longer exist in its
current form.
\205\ See, e.g., ICI Research Perspective, ``Ownership of Mutual
Funds, Shareholder Sentiment, and Use of the internet, 2020'' (Nov.
2020) (noting that 96 percent of households owning mutual funds had
internet access in 2020, up from 68 percent in 2000), available at
<a href="https://www.ici.org/system/files/attachments/per26-08.pdf">https://www.ici.org/system/files/attachments/per26-08.pdf</a>; Tailored
Shareholder Reports Proposing Release, supra footnote 204, at n.69
and accompanying text.
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We also propose to make conforming changes to Form N-1A and Form N-
3 provisions that discuss how a fund may make its proxy voting record
available on request to require a fund to provide the email address, if
any, that an investor may use to request the proxy voting record. Form
N-2 currently includes a similar provision, while Form N-1A and Form N-
3 only refer to a fund providing a toll-free telephone number.
We request comment on our proposed amendments to Forms N-1A, N-2,
and N-3 to require funds to disclose that their proxy voting records
are available on websites and upon request, including the following:
86. Should we require funds to disclose that their proxy voting
records is publicly available on (or through) their websites, free of
charge and in a human-readable format, as proposed? Why or why not?
87. Should we only require a fund to disclose that its proxy voting
record is publicly available on (or through) its website, and not also
require disclosure that the record is available upon request? Do
investors need the option to request a copy of a fund's proxy voting
record, or is website availability sufficient? If we retain the
availability upon request provisions, should we require a fund to
provide the email address, if any, that investors can use to request
the proxy voting record, as proposed? If not, why not? Are there any
other changes we should make that relate to an investor's ability to
request delivery of a fund's proxy voting record, including that relate
to the timeframe in which a fund delivers the voting record?
88. Are there other ways we could improve the accessibility of
funds' proxy voting records for investors? Please explain.
[[Page 57500]]
I. Compliance Dates
As described above, we are proposing that managers would be
required to report their say-on-pay votes annually on Form N-PX not
later than August 31 of each year, for the most recent 12-month period
ended June 30.\206\ We are proposing compliance dates that would vary
depending on when the amendments become effective relative to the
form's reporting deadline.
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\206\ Proposed rule 14Ad-1(a); General Instruction A to proposed
Form N-PX. For further discussion of the time of reporting
provisions, see the discussion in Section II.F.
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In the 2010 Proposing Release, we proposed that the first reports
under then-proposed rule 14Ad-1 and amended Form N-PX would be required
to be filed by August 31, 2011 (the same calendar year as the earliest
anticipated adoption date). A number of commenters requested a delay in
filing due to the compliance burden during initial implementation, with
some commenters suggesting a compliance date as late as August 31, 2012
(i.e. one calendar year after the proposed compliance date),\207\ or
covering votes beginning no earlier than six months after such proposed
rule's effective date.\208\
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\207\ See, e.g., ICI Letter; ISS Letter; Glass Lewis Letter I.
\208\ See Letter of Glass Lewis & Co. (June 3, 2011).
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We agree with commenters that a longer compliance period is
appropriate to provide reporting persons with a sufficient transition
period to implement the changes that would be needed to record and
report the information required by amended Form N-PX. We similarly
provided a period between the effective date and the beginning of
required compliance when we adopted proxy vote reporting requirements
for funds.\209\ We are therefore proposing that, if the amendments are
effective six months before June 30, the first reports on amended Form
N-PX would be required to be filed by the August 31 that follows the
rule's effective date. For a fund, the first report would disclose
votes occurring at least six months after the effective date in
conformance with the amended form, while applicable votes occurring
before this period could be reported in conformance with current form
requirements. A manager's requirement to report votes would begin six
months after the effective date, since managers are not currently
subject to Form N-PX reporting requirements. For example, if the
amendments become effective on September 1, 2022, reporting persons
would be required to report votes occurring between March 1, 2023 and
June 30, 2023 in compliance with the amended form and include those
votes in a report filed by August 31, 2023.
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\209\ See Form N-PX Adopting Release, supra footnote 7, at
Section III.
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If the amendments are not effective six months before June 30,
funds and managers would be required to file their first reports on
amended Form N-PX by August 31 of the first complete reporting
timeframe following the effective date of the proposed rule. As with
the prior compliance date alternative, the first reports would be
required to disclose votes occurring six months after the effective
date of the amendments and thereafter in conformance with the amended
form. That is, if the proposed rule takes effect on February 1, 2022,
the first reports on amended Form N-PX would be due on August 31, 2023.
For a fund, the first report would cover the reporting period of July
1, 2022 through June 30, 2023, with votes occurring between August 1,
2022 and June 30, 2023 reported in conformance with the amended form.
For a manager, the first report would cover votes occurring between
August 1, 2022 and June 30, 2023.
We believe that, under either alternative, the initial reporting
period would allow reporting persons and their third-party service
providers additional time to develop or modify the necessary systems in
order to record and report information on amended Form N-PX.
We are proposing to require funds to comply with the amendments to
Form N-PX at the same time as managers. This also allows funds
additional time to implement applicable new Form N-PX requirements in
the current proposal, including structured data reporting requirements,
new quantification requirements, and new requirements to identify proxy
voting matters and proxy voting categories. The proposed compliance
date also is intended to provide a uniform mechanism of reporting votes
at meetings that occur during the first reporting timeframe after the
effective date of the proposed rule, because funds would be permitted
to report say-on-pay votes for managers. As is currently the case,
funds would be required to comply with current Form N-PX requirements
until the end of the compliance period
[…truncated; see source link]Indexed from Federal Register on October 15, 2021.
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